AECOM : 2021 Investor Day Transcript

Corrected Transcript

Total Pages: 24

CORPORATE PARTICIPANTS

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

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OTHER PARTICIPANTS

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

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MANAGEMENT DISCUSSION SECTION

Operator: Good morning and welcome to the AECOM 2021 Investor Day 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 Investors section atwww.aecom.com. Later, we will conduct a question-and-answer session. [Operator Instructions]

I would like to turn the call over to Will Gabrielski, Senior Vice President, Finance, 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're using certain non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our presentation where available, which is also posted on our website. As a reminder, we sold the Management Services business last January and sold our Power and Civil Construction businesses in October of 2020 and January of 2021, respectively. 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. Today's references to margins and adjusted operating margins reflect segment-level performance for the Americas and International segments. We will also refer to net service revenue, or NSR, which is defined as revenue excluding subcontractor and other direct costs. Our discussion of margins will be on an NSR basis unless otherwise noted.

On today's Virtual Investor Day, Troy Rudd, our Chief Executive Officer will detail our strategy, key operational priorities and discuss our long-term financial targets. Gaurav Kapoor, our Chief Financial Officer, will discuss our financial performance, priorities for expanding our industry-leading margins and profitability and our financial targets in greater detail. We will conclude with a question-and-answer session.

With that, I will now turn the call over to Troy. Troy?

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W. Troy Rudd

Chief Executive Officer & Director, AECOM

Thank you, Will. And thank you all for joining us today. Today's virtual format is a bit different, but our intent is the same. We want you to walk away with a solid understanding of the strength of our teams, our strategy, our capital allocation priorities and what it means for our stakeholders. Of course, we are eager to engage with you in person as soon as it is safe to do so. We will look to schedule another event hopefully later in the year, so we can dive even deeper into our vision and give you an opportunity to meet our leadership team. I also want to acknowledge our teams across the globe for their contributions to our success and for their ongoing commitment to the safety of their teams and families. Thank you all for choosing to be part of AECOM and our journey.

Please turn to slide 5. I'd like to begin by reviewing the key messages for today and highlight why we are well positioned to outgrow the industry, and to deliver superior margins and returns for our shareholders. First, we are an industry-leading professional services firm with a track record of delivering on our commitments. Through consistent execution, we are focused on continuing to meet or exceed our financial targets. This is very important to us as a company and as a management team. Second, we are the best-positioned firm in our industry to deliver on our clients' growing focus on decarbonization, sustainability and ESG. We are clear leaders in the right markets; environment, water, climate adaptation, resiliency, green design and program management, all of which are already inflecting positively. We think this is the first inning of a very long cycle and no other company is better positioned. Third, accelerate in our top line organic growth is a priority. We have an enviable position. We lead in nearly every market and sector in which we operate. This is a great starting point and foundation and we don't need M&A to succeed. Today, we have structured the organization to capitalize on our advantages whether it's our scale or investments in innovation to transform how we operate. As a result, we are committing to outgrow our peers and the industry. Fourth, we expect to deliver a 15% segment adjusted operating margin by fiscal 2024, which is a few years ahead of what we expected when we set this long-term goal in December of 2019. We'll talk through the details of our plan to achieve this target today. And finally, today, we are committing to more than double our adjusted earnings per share and free cash flow from fiscal 2020 to fiscal 2024. This is built around our growth initiatives, continued margin expansion and ongoing commitment to return substantially all free cash flow to shareholders through repurchases.

Turning to slide 6, I want to begin by highlighting our competitive advantages in the marketplace. First and foremost, it begins with our people. We have the best technical experts, architects, engineers, planners, program managers, advisors, environmental scientists and innovative thinkers in the industry. Second, with nearly 50,000 people, our scale is a competitive advantage in how we go to market and how we deliver. We can make investments and deploy innovation in ways that make us stand out in the market. This creates a flywheel effect ofmargin expansion, increased profitability, strong cash flow and additional capital to reinvest in our organic growth and return to our shareholders. Third, we have restructured the business and today we're in the strongest position we've ever been in. Our vision is highly focused on higher-returning, lower-risk professional services markets.

We've aligned our strategy in our actions and organizational structure including through our Think and Act Globally strategy. We've eliminated unproductive cost and bureaucracy and we've identified areas where we can invest organically to outgrow the market. Finally, we are the market leaders. We are already number one in environment, number one in transportation design, number one in facilities design and we hold many top water and green design rankings. We have the leading position of markets where clients are investing - transit, clean environment next-gen energy, water, per- and polyfluoroalkyl substances otherwise known as PFAS and others.

These markets are poised to grow in response to the complex microeconomic (sic) [macroeconomic] themes such as infrastructure capacity, social equity, energy transition and environmental resiliency to name a few. Common to all of these markets are our clients' aspirations to decarbonize their portfolios and advance their sustainability objectives. I'll emphasize again, our clients have new priorities focused on ESG and we stand out as the company that can best advise and execute for them.

Turning to slide 7. We have transformed the company and are better positioned today to capitalize on the opportunities in front of us. First, at our core, we've always been a higher-margin and lower-risk professional services business. However, along the way the strategy evolved and we found ourselves in markets and businesses that weren't consistent with this profile. Over the past few years, in an effort to get back on this core, we undertook a number of actions to eliminate distractions, reduce risk and sharpen our focus. We exited businesses that didn't create acceptable financial returns and exposed us to asymmetrical risk/reward profiles.

This includes the sale of our Civil and Power Construction businesses and ongoing exit from other underperforming markets. These were distractions on our time and diluted the return on our capital. We have refocused our strategy on our core Professional Services and knowledge-based capabilities, since this is where we generate the most profit, highest returns and we see the best opportunities for growth.

One of the clear benefits has been more consistent execution. We're now consistently meeting or exceeding financial targets as demonstrated by our results. We grew our adjusted EBITDA by double digits in each of the last two years. And we've guided for strong growth again in 2021. You can also see this in our margins. We have gone from one of the lowest to one of the best in the industry. We made it a point to make the business more efficient and drive continuous improvement. As a result, we are consistently exceeding our margin objectives while continuing to invest in business development and key talent.

We're also delivering value through capital allocation. We have bought back $630 million of stock since September or nearly 9% of our shares outstanding. And we've done this at an attractive price. We want to be known for consistently delivering on our commitments, and our recent results should inspire confidence in what we are capable of.

Turning to slide 8, we are our clients' key partner in the delivery of their ESG, decarbonization, net zero and sustainability priorities. These are the megatrends that each and every one of our clients are grappling with. To make the point tangible, consider that more than 1,500 companies in 800 cities have net zero mandates. These are our clients. The opportunity is enormous. So you can see from the slide a number of emerging trends and drivers for our clients' ambitions and as a result for our business.

How will cities respond to changes after the pandemic? What are cities going to do to electrify transit systems and adapt their infrastructure to the world with electric and autonomous vehicles? How will cities build resiliency to protect against the impacts of climate change? How will our clients address a greater focus on the environment, including cleaning up forever chemical such as PFAS? How will our clients meet renewable energy mandates?