AECOM : Q2 2021 Earnings Conference Call Transcript

Corrected Transcript

11-May-2021

AECOM (ACM)

Q2 2021 Earnings Call

	Total Pages: 21
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AECOM (ACM)	Corrected Transcript
Q2 2021 Earnings Call	11-May-2021

CORPORATE PARTICIPANTS

William J. Gabrielski	Lara Poloni
Senior Vice President, Finance, Investor Relations, AECOM	President, AECOM
W. Troy Rudd	Gaurav Kapoor
Chief Executive Officer and Director, AECOM	Chief Financial Officer, AECOM

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OTHER PARTICIPANTS

Sean D. Eastman	Michael S. Dudas
Analyst, KeyBanc Capital Markets, Inc.	Analyst, Vertical Research Partners LLC
Michael Feniger	Steven Fisher
Analyst, BofA Securities, Inc.	Analyst, UBS Securities LLC
Andrew Kaplowitz	Jamie Cook
Analyst, Citigroup Global Markets, Inc.	Analyst, Credit Suisse Securities (USA) LLC
Andrew John Wittmann	Adam Robert Thalhimer
Analyst, Robert W. Baird & Co., Inc.	Analyst, Thompson Davis & Co., Inc.

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MANAGEMENT DISCUSSION SECTION

Operator: Good morning, and welcome to the AECOM Second Quarter 2021 Conference Call. I would like to inform all participants, this call is being recorded at the request of AECOM. This broadcast is 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. [Operator Instructions]

I would now like to turn the call over to Will Gabrielski, Senior Vice President, Finance and Investor Relations. Please go ahead.

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William J. Gabrielski

Senior Vice President, Finance, Investor Relations, AECOM

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 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 segments. We will refer to net service revenue or NSR, which is defined as revenue excluding subcontractor and other direct costs.

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AECOM (ACM)	Corrected Transcript
Q2 2021 Earnings Call	11-May-2021

As a reminder, we sold the Management Services business in January 2020 and we sold 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 the 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. Lara Poloni, our President, will discuss key operational priorities; and Gaur 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?

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W. Troy Rudd

Chief Executive Officer and Director, AECOM

Thank you, Will, and thank you all for joining us today. I'd like to begin by acknowledging our team's contributions to our success. Despite the ongoing challenges posed by COVID, we continued to focus on the health and safety of our professionals and their families, which has allowed us to deliver for our clients, communities and all stakeholders.

Today, some of the markets in which we operate are emerging from the worst of the pandemic. However, other markets are not. Through it all, we have demonstrated agility and we are working more collaboratively than ever before. We are unified by our Think and Act Globally strategy. And as more markets recover, we are even better positioned than ever.

Turning to our financial performance and outlook for the business. We entered fiscal 2021 with guarded optimism. Trends in many of our larger markets had begun to stabilize and our focus on our higher returning and lower-risk Professional Services businesses brought in new energy and determination to the organization. Against that backdrop, I am very pleased with where we stand today.

Revenue trends are improving, including 1% NSR growth in the second quarter. This is consistent with our expectations for improved growth as we advanced through the year. Margins also continued to expand and lead our industry. We delivered a 140 basis point increase in our segment adjusted operating margin to 13.1%, a new high for the second quarter and consistent with our expectations for an at least 90 basis point increase for the full year.

The actions we have taken over the past few years to streamline our global organization and to reduce our overhead costs are contributing consistently to strong profitability. As a result, adjusted EBITDA increased by 11% and adjusted EPS increased by 22%, both of which were slightly ahead of our expectations.

Looking ahead, our backlog and pipeline are strengthening. And this provides us with good visibility. Backlog in our design business increased by 8%, with growth in both our Americas and International markets. This was offset by a decline in Construction Management business, which was consistent with our expectations. However, we are now seeing a recovery in the Construction Management pipeline, particularly as our clients plan with greater certainty against a better economic backdrop.

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AECOM (ACM)	Corrected Transcript
Q2 2021 Earnings Call	11-May-2021

We're pursuing several meaningful award opportunities with decisions expected in the second half of the year. Across the business, our contracted backlog, which is a leading indicator of revenue growth, increased by 13% in total, including 4% growth in our design business.

Our focus on our people, clients and communities has galvanized the organization, creating more and better collaboration, and is resulting in a stronger and more valuable company to all stakeholders.

Please turn to the next slide. As we turn to the second half of the year and beyond, several factors are contributing to our continued confidence in the business and increased optimism in our markets. First, our state and local clients, which represent our largest public sector client base, are on stronger financial ground. The $350 billion cash infusion from the March COVID relief bill, combined with the benefits of the December relief bill, improving economic activity and strong tax collections have made nearly all 50 states whole for the revenue lost during the year.

In addition, the relief bills also allocated nearly $70 billion to our transportation clients, which reflects approximately 75% of the annual federal transit and transportation funding, which has led to an increase in our pipeline and an improved pace of decision making. Today, our largest state and local clients are funded at levels higher than pre-COVID. And these clients are deploying these funds to job creation and infrastructure investment.

Second, the debate on transformational infrastructure legislation in the US continues to advance, including both traditional road and bridge investment, as well as a set of ESG priorities. The set of broader priorities are also apparent in President Biden's proposed $2.3 trillion infrastructure bill and the budget proposal for 2022, and in many instances are mirrored in Republican infrastructure proposals.

Encouragingly, these include several areas where we lead, such as electrifying transit systems, PFAS remediation, new energy, resilience and clean water. With federal infrastructure spending as a share of GDP at multi-decade lows, there is a growing backlog of critical projects that could be advanced should this federal funding materialize, and we are already partnering with clients to be ready for the anticipated increase in funding.

Third, our private sector clients are also prioritizing investments in ESG, benefiting our industry-leading positions in green building and green design, environmental compliance and remediation, energy efficiency and infrastructure resilience. Many of these clients are engaging us specifically in response to ongoing stakeholder feedback to deliver on ESG initiatives. AECOM's position here is very strong. The challenges and opportunities facing our clients are global and require the depth and breadth of our consulting, program management and advisory capabilities.

Fourth, growth outlook in our larger markets outside the United States are improving. In the UK, our largest international market, economic growth forecast now project a recovery to pre-pandemic levels in 2022. We delivered a 1.2 book-to-burn ratio in the UK in the second quarter, reflecting these better market trends.

In addition, we are benefiting from the actions we have taken over the past several years to reestablish our leadership position on key public frameworks where we are now seeing positive contributions. In Canada, we delivered strong growth in the second quarter and were successful on a large pursuit in April that supports our confidence going forward, particularly as the federal government's latest budget continues to prioritize infrastructure investment.

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AECOM (ACM)	Corrected Transcript
Q2 2021 Earnings Call	11-May-2021

In the Asia Pacific region, Australia and Hong Kong continue to recover and our book-to-burn ratio was nearly 2 in the second quarter. Our focus in our India business is on the health and safety of our workforce and their families and continuing to deliver on our clients' commitments.

Finally, and most important to our success, the strategic alignment of our professionals around new priorities has created a great deal of energy and momentum. As we discussed at our Investor Day in February, central to our strategic efforts are the actions to broaden how we engage with our clients. This includes expanding our role as key technical and strategic advisor, expanding our project program management business and continuing to bring the industry's best technical experts and digital solutions.

As part of this effort, Drew Jeter joined AECOM January to lead our program management business. We were recently awarded a program management contract to oversee a $1.1 billion highway widening program, another large program management contract from the Dallas Independent School District for the $3.5 billion bond program, and we are pursuing several larger opportunities.

In addition, Jennifer Aument joined our organization in April to lead our global transportation business at a time when funding is set to benefit our key transit clients who are looking to advance complex multiyear programs. Jen's leadership in driving the creation and delivery of large programs will be a key asset and builds on our industry-leading market position.

Drew and Jen are complemented by our already strong leadership team. Reflecting the momentum in our organization, in our markets, bid submissions and active proposals in our Americas design business are up by double digits since the start of the year. And in April, we saw decision-making begin to accelerate and a number of larger pursuits converted to wins.

Importantly, today, our 47,000 people are operating from a market-leading position. As indicated by ENR, we are the number one ranked transportation design firm, the number one ranked facilities design firm, the number one ranked program management firm, the number one ranked global environmental consulting firm, and just improved the ranking of our water business to number two despite not making any acquisitions.

Even during these challenging times, we are confident we are taking market share. When combined with these steps we have taken to empower the organization to grow, we're better-positioned than ever to deliver on our long term financial objectives and outgrow the industry. These include a commitment to more than double adjusted EPS and free cash flow by 2024 as compared to 2020, and to deliver industry-leading margins and return on invested capital.

With that, I will turn the call over to Lara.

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Lara Poloni

President, AECOM

Thanks, Troy. Please turn to the next slide. I echo Troy's sentiments on the momentum in the business and the strength and culture and strategic alignment across the organization. Over the past year, we have undergone a transformation in how we are organized, how we operate, how we go to market and how we serve our clients and communities.

Today, our strategy, culture and capabilities are squarely focused on our people, clients and communities. And we, as leaders, are inspired by our teams and energized by the opportunities we see in front of us.

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