AECOM

Good morning, and welcome to the AECOM third quarter 2023 conference call. I would like to inform all participants this call is being recorded at the request of AECOM. This broadcast is the copyrighted property of AECOM. Any rebroadcast of this information in whole or part without the prior written permission of AECOM is prohibited. As a reminder, AECOM is also simulcasting this presentation with slides at the investor section at www.aecom.com. Later, we will conduct a question and answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. I would like to turn the call over to 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 those described in our periodic report filed with the SEC. Accepted law requires 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 pass-through revenue. NSR and backlog growth rates are presented on a constant currency basis. Unless otherwise noted, today's discussion of key performance indicators will focus on the continuing operations of the company and will exclude AECOM Capital, which reported as non-core, given the company's intent to transition the business. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy, and outlook for the business. Laura Pelloni, our President, will discuss key operational successes and priorities. And Garth 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. Troy?

Thank you, Will, and thank you all for joining us today. The strength and consistency of our results are a testament to the competitive advantage we have built through our Think and Act Globally strategy, which has enabled the strong collaboration of our 50,000 technical experts and a focus on winning what matters to expand the long-term earnings power of the company. I'm pleased to see that our leadership was again recognized by ENR in its recent annual survey. In addition to our top rankings in transportation and facilities design and environmental design, we overtook the top spot in mass transit, chemical remediation, and environmental consulting. Our focus on organic growth in our program management business also resulted in us moving up the rankings, displacing strong competitors, and we expect this trend to continue. These market share gains are especially notable as they are driven by high-margin organic growth, which is in contrast to our peer group that remains highly acquisitive. I want to thank our teams for their commitment to our success and congratulate them on these remarkable achievements. Turning to our third quarter performance, a few key trends are apparent in our results. First, our investments in organic growth are paying off. NSR growth in the design business was 10%. which is the highest growth rate in many years and includes strong performance across nearly every major geography in which we operate. Second, this growth is coming at consistently high margins, which is enabling us to invest in a high rate of growth in our backlog and pipeline. And our adjusted operating margin of 15.2% reflected an all-time high. This trend affirms our confidence in delivering a 17% margin in the future. Both the Americas and international segments contributed to this strong performance, which resulted in adjusted EBITDA and adjusted EPS increases of 10% and 12% on a constant currency basis. Third, we continue to generate strong cash flow with $265 million of free cash flow in the quarter, which enabled the consistent execution of our returns-focused capital allocation policy. including returning more than $220 million to investors fiscal year to date. Finally, we've built a foundation for continued growth throughout our strong pipeline and targeted investments. Backlog in the design business increased by 10% to a new record, driven by both the Americas and international businesses. This growth included three other noteworthy attributes. First, given our record quarterly margins, our backlog is more profitable than ever. Second, delivering a double-digit increase in backlog on top of a double-digit increase in revenue reflects the strength of our pipeline and our continued high win rate. Third, our share of wins valued at greater than $25 million have more than doubled over the past few years, which creates greater visibility and certainty into the future. Please turn to the next slide. Turning to our markets, in the U.S., funding for key infrastructure initiatives is advancing. This includes increasing activity from the IIJA, Inflation Reduction Act, and robust state and local infrastructure investment. A great example is our selection to serve as a lead designer for the renovation of the historic Brent Spence Bridge Corridor Project, which we were awarded after the corridor closed. Our technical expertise beat out the formidable competition on this landmark pursuit that is being supported by $1.6 billion of funding from the IIJA. We expect these drivers to further accelerate in 2024 and beyond, which is consistent with the continued growth in our pipeline of proposals and bids submitted. In Canada, our backlog continued to increase. Both provincial and national priorities are aligned around transportation, environmental remediation, energy transition, and hydrogen infrastructure investment, markets where we are well-positioned to capitalize. Across our international markets, backlog reached a new high with strength across nearly every major market. Importantly, with our margins now effectively at our double-digit target, each point of growth is increasingly valuable to the enterprise, and our confidence is high in continuing to increase our margins in the future. Importantly, in all of these markets, our program management and advisory businesses have expanded our addressable market to provide a strong complement to our technical expertise. I want to highlight another noteworthy accomplishment during the quarter. We successfully positioned AECOM as a leader in the long-term rebuilding of Ukraine, which is estimated to cost nearly half a trillion dollars. This included a memorandum of understanding with Ukraine's Ministry for Communities, Territories, and Infrastructure Development to serve as its reconstruction delivery partner. In addition, we signed an agreement with the Ukraine State Agency for Restoration and Development of Infrastructure, which will advance national design standards and provide engineering support for critical infrastructure projects. Discussions to begin are already underway, and we are proud to be at the forefront of the reconstruction of Ukraine. I'm also pleased that our recent activities are consistent with our planned transition of AECOM Capital and include the following. First, we have signed a term sheet to transition the AECOM Capital team to a new platform. which will be facilitated by AECOM on a transactional basis and will enable the team to continue to support AECOM's existing investment vehicles and investments in a manner consistent with their current obligations. This transaction, which we expect will close later this fiscal year, will create continuity for the team, reduce overhead costs for AECOM, and ensure the right level of ongoing support for the management and delivery of our commitments. Second, we have completed a project-by-project review of our existing investments. Based on this review, we expect the disposition of AECOM capital investments to return between $50 and $100 million of capital to AECOM over the next several years. Third, we also evaluated alternatives for investment on its balance sheet, including funding additional carrying costs that might be required if the current market conditions persist. We determined that additional investments of time and capital in these investments would be inconsistent with our return-driven capital allocation policy. Finally, to reflect this change, we've adjusted the carrying value of these investments, which resulted in a non-cash impact to our P&L. However, as I spoke a moment ago, we are confident that the realization of our investments will be a positive cash contributor to AECOM and create additional capital for higher returning opportunities. Before turning the call over to Lara, I want to provide an update on our guidance. Against a strengthening market backdrop and with our strong year-to-date performance, we are increasing our fiscal 2023 financial guidance. This performance would mark the fourth consecutive year that we have outperformed our initial expectations. With that, I will turn the call over to Lara.