AECOM

Good morning and welcome to the AECOM fourth quarter 2023 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 investor section at www.aecom.com. Later, we will conduct a question and answer session. If you have a question, please press star then the number one on your touchtone phone. If you wish to be removed from the queue, again, press the 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 reports filed with the SEC. Except as law requires, we undertake no obligation to update our forward-looking statements. We use certain non-GAAP financial measures in our presentation. The appropriate gap reconciliations are incorporated into our materials, which are posted to our website. Growth rates are presented on a year-over-year basis unless otherwise noted. Any references to segment margins or segment-adjusted operating margins will reflect the performance for 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 and core operations of the company. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy, and outlook for the business. Lara Piloni, 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.

Thank you, Will, and thank you all for joining us today. I want to begin by thanking our 52,000 professionals who are the most talented in our industry. Through their technical expertise and global collaboration, we've extended our competitive advantage. This includes building a record design backlog that is supported by long-term projects with stable funding sources. I also want to highlight our record safety performance during the year. Ensuring the safety of our teams is essential. Our total recordable incident rate remains well ahead of industry benchmarks and our internal targets, which is a testament to our culture. Turning to our results, we outperformed on every key financial metric in both the fourth quarter and full year. Organic NSR growth in the design business was 10% in the fourth quarter and 9% for the full year. This was highlighted by the strength of our water, transportation, and environment businesses which are benefiting from strong secular growth trends and organic market share gains. Our margins also exceeded guidance and set a new annual high. Our profitability continues to lead our industry, which enhances the value of our record design backlog. As a result, full year adjusted EBITDA and EPS increased by 10% and 12% on a constant currency basis. Both metrics exceeded our initial and increased guidance midpoints, despite headwinds from the strengthening US dollar. Consistent with our track record of strong cash performance, free cash flow was in the upper half of our guidance range, which enabled the execution of our returns-focused capital allocation policy. This included approximately $475 million allocated to share repurchases and dividends during the year. Based on our strong cash flow profile and the strength of our balance sheet, we also affirmed our capital allocation policy, which is led by investments in high returning organic growth, followed by share repurchases and dividends. Since 2020, we have returned $2 billion to our stockholders. We announced an increase in our share repurchase authorization to $1 billion and an increase to our quarterly dividend by 22%. This marks the second consecutive year of at least 20% increase in our dividend and is consistent with our long-term plan for annual double-digit percentage increases. Please turn to the next slide. Across our results, three key themes were apparent. First, we are winning key pursuits at a record rate. Both total and contracted backlog in the design business reached all-time highs, led by 21% growth in contracted backlog in the Americas design business. In addition, the profile of our WINS continues to shift to higher value, longer duration projects and programs for our largest clients, which adds to our visibility. In fact, WINS valued at greater than $50 million during the year increased by 70% from just a few years ago, which has the effect of expanding our long-term earnings power. Second, investments in infrastructure, sustainability and resilience, and the energy transition are are converging into a powerful cycle that plays to our strengths. Funding from the IAJA is beginning to flow into our markets, and commitments towards achieving ambitious net zero targets are driving our clients' investment decisions. Finally, our competitive advantage is expanding as evidenced by our industry-leading organic design backlog growth, record high win rates, and our industry-leading margins. The combination of our technical leadership collaborative culture, and our day one advisory, day two program management, and day three design capabilities has us positioned as the partner of choice across the full life cycle of our clients' most critical investments. Against a constantly evolving economic and geopolitical landscape, we are in a leading position to deliver. Nearly 90% of our income is generated in the Americas, the UK, and Australian markets. These economies are amongst the most resilient in the world and feature record funding commitments in our markets. We have diversified our private sector exposure, and the majority of our private sector business is linked to markets and clients that are accelerating their investments. This includes our water and environment practices, where we are primarily delivering for clients operating budgets and not capital budgets, and where regulatory requirements drive a substantial portion of client spend. This is also true for our facilities business, where 75% of our work in the America's design business is for public sector clients, where funding is more predictable. Importantly, our exposure to the private U.S. commercial real estate market is less than 3% of total NSR. And while there remains uncertainty around the U.S. federal budgeting process, the impacts of a typical shutdown are immaterial to us, and we estimate that less than 1% of our business would be impacted. Our contracts are well-funded, and all indications that most of our work would continue through a shutdown. In addition, our state and local clients are benefiting from historically strong tax revenues, accelerating IHA-related grant activity, and direct funding from the Federal Highway Trust Fund, which is funded through a separate and already completed authorization process.