AECOM

Good morning and welcome to the AECOM second quarter 2024 conference call. I would like to inform all participants, this call is being recorded at the request of AECOM. This broadcast is the copyright 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, please press star one on your telephone keypad. And if you would like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to Will Gabrielski, Senior Vice President, Finance, Treasury, and Investor Relations. Will, you may begin your conference.

Thank you, Operator. I would like to direct your attention to the Safe Harbor Statement on page 1 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 have certain non-GAAP financial measures in our presentation. The appropriate GAAP 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 remarks will focus on continuing operations. Our discussion excludes the results of the AECOM capital business. After the end of the second quarter, we closed a transaction that transitioned the AECOM capital team to a new platform, while ensuring the team will continue to support AECOM's existing investment vehicles and investments through completion. During the quarter, we also incurred a non-cash $103 million loss in discontinued operations. related to revisions to estimated contingent consideration receivables recognized at the time of sale of the civil construction business in 2021. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy, and our outlook for the business. Lara Piloni, our President, will discuss key operational successes and priorities. And Gaurav Kapoor, our Chief Financial and Operations 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'm pleased to report that based on our strong second quarter and first half operational performance, we are increasing the midpoint of our adjusted EBITDA guidance for the full year. The strength of our results rests on the expertise and focus of our 52,000 professionals who have distinguished AECOM in the market. Through our TechX initiative, we continue to make key investments in the professional and technical development of our people, ensuring that we bring the best of our expertise to our clients around the world. With our unrivaled technical expertise and highly collaborative culture, we are consistently recognized as a leader in all of our markets. To this point, I'm pleased to report that in late April, we were recognized by ENR as the number one water consulting firm in our industry. adding to our existing leadership positions in the transportation, environment, and facilities markets. This accomplishment reflects our scale and record level of investments and growth, which have contributed to us winning work at a record high rate. This recognition also comes at an opportune time when key issues including the impact of climate change, water scarcity, and emerging contaminants are creating unprecedented demand and funding. The recent final EPA rule establishing maximum contaminant levels For PFAS, Stans is a great example. This is a market where we have supported clients for more than two decades and our backlog increased by nearly 50% during the second quarter. Turning to our second quarter results in more detail. Net service revenue increased by 8% and by 9% when adjusted for year-on-year fluctuations in workdays. Notably, this included strong performance in every key geography, as well as growth in the environment, water, and transportation end markets. We also delivered records for our adjusted EBITDA, margins, backlog, and pipeline of opportunities, and adjusted EPS increased by 13%. Cash flow is also strong, which is a testament to the higher returning and lower risk characteristics of our professional services business. Our consistently strong cash flow generation supports our returns-focused capital allocation policy, which is built on organic growth investments, and returns to shareholders through repurchases and dividends. A few key themes across the business underpin our confidence. First, we are winning at near record level and it is clear that our competitive advantage is delivering organic market share gains. In the second quarter, we won approximately 50 cents of every dollar we bid, which marks the 10th consecutive quarter with a win rate at or nearly 50%. On our largest pursuits, where our competitive advantages are even greater, Our win rate is 30% higher. Second, our adjusted EBITDA margin increased by 40 basis points to 15.4%, a new all-time high. Importantly, our strong margins enable us to reinvest in organic growth. Today, we are investing at record levels in business development and digital initiatives to capture a greater share of our record pipeline and compound our advantage over time. Third, long-term megatrends of global investments in infrastructure, sustainability and resilience, and the energy transition are firmly intact. As a result, activity is strong in all of our largest and most profitable markets. For example, in the U.S., funding from the Infrastructure Investment and Jobs Act and strong federal, state, and local trends supported a 1.4 book-to-burn ratio in the quarter. In Canada, the government released a $56 billion investment 10-year infrastructure investment program, which is double that of the prior multi-year plan. In the UK, near-term election uncertainty has clouded the picture on larger transportation projects. However, our backlog is at record levels and reflects an increasingly diverse set of opportunities. This includes the expected near doubling of funding over the next five years for the AMP8 water program, where we have existing experience with nearly every large water utility involved. In the UK market, we also have ongoing investments through transportation frameworks and new opportunities around energy transition. And in Australia, the ongoing $120 billion infrastructure investment program is advancing, and we are already working on several key projects that support this pipeline. Finally, and most importantly, our decision to build a global program management advisory business has been a game-changer. I want to expand upon why this has been the case and why we have set a longer-term ambition of delivering 50% of our revenue through program management advisory services. Our investment in program management was born from an emerging need we identified in the market, resulting from a few accelerating trends. First, project size and complexity continue to increase, including a tenfold increase over the past 10 years in the number of multibillion-dollar projects in the U.S. alone. At the same time, our clients are increasingly facing internal capacity and capability constraints to deliver on their ambitious objectives, which has created more demand for technical expertise and program management consulting services to augment their in-house capabilities. Lastly, while plenty of companies offer a program management capability, we saw a void in that none combined this capability with the deep technical expertise and the culture of global collaboration that we have. Program management advisory services also include several financial benefits to the organization, including elevating the value of our technical expertise, expanding our addressable market share of higher margin, lower risk elements of an infrastructure project or program, creating more visibility through larger multi-year wins, and elevating our role with clients, which leads to more opportunities over time. As a result, we set out to truly redefine how global program management is delivered. We invested to bring on the best program management and digital resources in the industry. And we focused our resources on the biggest opportunities. I'm pleased to report that we have over-delivered on our initial goal to double program management revenue within three years. And today, program management represents 15% of our net service revenue. In fact, we have won 15 of our last 16 large pursuits including several defining wins. These include the FEMA PA TAC win this quarter, which further establishes AECOM as a leader for FEMA on disaster response work. We are also the program management for California High-Speed Rail, the largest high-speed rail investment underway globally, and for the US Navy on its largest environmental contracts. Taken together, we are energized by the strength of our performance, trends across our markets, a record backlog in pipeline, and the clear advantages created by the execution of our strategy. With that, I will turn the call over to Laura.

Thanks, Troy. I am proud of our continued strong performance. Today, not only are we winning larger and higher value pursuits, but we are winning at a consistently higher rate than ever before. These accomplishments are the culmination of several elements of our strategy that are bearing fruit. First, the volume of investment and opportunity across our industry is at unprecedented levels. To fully capitalise, we have built our strategy on allocating our time and resources to our largest clients where we see the greatest growth opportunities. Reflective of this effort, revenue with our top 200 clients who represent more than 50% of our revenue has grown multiple times faster than the rest of the business over the past several years. Importantly, our backlog with these clients is growing even faster which underscores the confidence we have in our growth outlook. Second, through our program management business, we are elevating the value of our technical expertise within our number one ranked transportation, water, environment and facilities businesses. As a result, we are also winning more larger projects than ever before. Our share of wins valued at more than $50 million has doubled and wins valued at greater than $100 million have tripled over the past few years. Large wins enhance earnings visibility and capitalize on our company's global scale and industry-leading technical expertise. Third, our focus on technical excellence and career development is paying dividends. We have been very intentional about reinvesting to build global technical practice networks and technical academies to support our strategy and drive collaboration across the business. These programs are a key part of what we refer to as TechX. which is designed to elevate our culture through technical development programs for our teams. These investments are contributing to our low employee attrition, which is at levels that rival the lows we experienced even prior to the pandemic. Finally, our focus on high-growth end markets is contributing to our strong revenue and backlog trends. This includes the nearly 50% backlog growth for PFAS-related workers' quarter, and we expect net service revenue growth to accelerate following the recent final EPA water rules. Importantly, we already hold every major environmental contract vehicle, including the key vehicles for PFAS-related work for all of the Department of Defense, NASA, and many other civilian agencies of the U.S. government. This strength was further solidified with our recent selection by the U.S. Army for a $464 million multiple award contract. Our number one position in water and environment has us well positioned to continue to capitalize. This also includes nearly 20% growth in our digital consulting practice, where our infrastructure clients are turning to our capabilities and deep knowledge of their assets to help drive automation and digitization opportunities. In addition, investments in electrification and renewable energy are deriving a record pipeline of opportunities and continued growth. In the UK alone, we have recently been selected for marquee programs, including for the SCAPE Power Utilities Consultancy Framework and for the Great Grid Upgrade. On the latter in particular, the integration of our global design centres into our offering provided a key advantage in addressing a local shortage for electrical grid design experts. We also realised some key milestones in our data centre business during the quarter, including a landmark win for us in the US. As we look ahead, we are well positioned as these markets continue to accelerate. With that, I will turn the call over to Gar.