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. [Operator Instructions] 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 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 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 GAAP reconciliations are incorporated into our materials, which are posted to our website. Growth rates are presented on a constant currency 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 Poloni, our President, will discuss the key operational successes and priorities. And Gaurav 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. 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 and 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 U.S. 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…

Thanks, Troy. Please turn to the next slide. Fiscal 2023 was a milestone year in many respects. Our teams are energized by our record high design win rate in the year and backlog position, which validates the competitive advantage we have built through our technical excellence. Through our strategy, we are ideally suited to deliver as the global infrastructure megatrends accelerate. We are consistently winning our high priority pursuits at a record rate and on 90% of our wins, our technical score is essential to our success. In addition, as projects become larger and more complex, clients are increasingly asking for more from their consulting partners and through our world-class program management and advisory capabilities, we are distinguished from our competition. In addition we continue to maintain leadership positions in the market sectors benefiting from these trends. In water which represents 26% of our design NSR investments to address persistent drought, flooding and drinking water scarcity are increasing and play to our strengths, as evidenced by our transformational wins throughout the year. We won a resiliency contract to help the City of New York deliver a new conveyance tunnel that will improve the reliability of its water supply. This win drew on our global water sector expertise and experience working on projects of this scale and complexity. Also, we were selected for a large hydroelectric project in Canada that was the result of our leading hydroelectric engineering capabilities. This win is representative of a growing set of similar opportunities across our markets. Water trends are equally strong in the international market. For instance, in the U.K., spending across the AMP8 water infrastructure programs is expected to increase by 75% over the next five years as compared to the prior five-year cycle. Our exposure to these clients is expanding just as…

Thanks, Lara. Please turn to the next slide. We exceeded the midpoint of both our initial and increased guidance ranges in 2023 as we continue to build on our track record of delivering on our commitments and generating long-term shareholder value. This performance included 10% organic NSR growth in the design business in the fourth quarter, industry-leading margin performance and continued strong cash flow. As we turn to 2024, we are encouraged by a strong end-market backdrop, building from a record design backlog and 20% growth in our design pipeline. We are poised to deliver another year of strong NSR growth, record margins and 20% adjusted EPS growth at the midpoint of our guidance range. I am also pleased to report that we announced an increase in our share repurchase authorization to $1 billion and a 22% increase in our dividend. These actions reflect our confidence in the long-term cash flow profile of the business and the continued opportunity to enhance value creation through our operating performance. Please turn to the next slide. In the Americas, we delivered 9% NSR growth in the design business in the fourth quarter. We are benefiting from a high win rate along with strong client funding. As a result, we achieved a record design backlog which was driven by our water, transportation and environment businesses which all delivered a 1.2 or greater book to burn ratio for the year. The adjusted operating margin was 19% in the fourth quarter and reached a record high for the full year. This strength reflects the benefit of our strategy, which is focused on delivering the highest value elements of a project or program and the emphasis we place on return on time and capital. Please turn to the next slide. Turning to the international segment. Fourth quarter…

[Operator Instructions] Your first question today comes from the line of Michael Feniger from Bank of America. Your line is open.

Hi, everyone. Thanks for taking my question. Just to kick it off, Troy, you're forecasting growth to remain stable to actually slightly accelerate in 2024. Just what gives you that confidence today to see NSR growth grow to that 8% to 10%? Is that even through the year to start lower and pick up in the second half? Is there anything you want to flag about the moving pieces for us to think about that growth staying stable - growth rate seems to be able to slightly picking up in 2024?

Yes. Thanks for the question. Good morning. So I would - I mean really our confidence in our growth is attributable to a number of different things. First is - we go through the same process every year that we do when we build up our plan. We start by looking at our backlog. And when you look at our backlog this year, our design business, which represents about 94% - 93%, 94% of our business is actually - our contracted backlog is actually up 15% this year. And so that gives us tremendous confidence. And then in our CM business, which represents about 6% of our business, we have about four years of work, so it sits in that business. So that's the starting point, is that just our backlog gives us great confidence that we can continue to grow, frankly, at the same rate we did in the second half of this year. And then the other important element of this is just the overall markets that we play in. Our longer-term confidence even beyond the year is based on the fact that we are exposed to some long-term investment cycles in infrastructure and sort of resilient to your sustainability. You think about that as sort of things like supply chain shifts or investments in coastal resiliency. And then there's an energy transition. And so that also gives us confidence. And then beyond that, 90% of our revenue is actually coming from four geographies. It's Canada, the U.S., Australia and the U.K. So all those things taken together give us confidence. And the one thing in the past that has sort of been a headwind to growth was actually the ability to add people fast enough to the business. And I think we've got in a position now where turnover is certainly voluntary turnover is at a much lower rate. And we're adding people to the business that are right that supports that growth. So all of that leads to confidence around our forecast for this next year.

Thanks Troy. And just to follow up. There's just a lot of focus right now on how higher rates are weighing on construction. Mostly obviously private side. You touched in your comments about your exposure to commercial real estate, you do have certain exposure to private customer base. Can you just unpack that private side? How much of that do you see is vulnerable to high rates of economic uncertainty? What are you seeing in that portfolio outside of maybe commercial real estate? And just lastly, Troy, like are you - in 2024, are you forecasting a further weakness, stability? What are you kind of seeing in that construction management segment that people kind of focus on what are you kind of embedding for 2024 there? Thank you.

Okay. Yes. Well, I'm going to take this a number of different ways. So first of all, if I look across the business. Overall, our exposure to commercial real estate is less than 3% of the entire business, whether that's construction management or the design business. And frankly, we continue to move towards the broader opportunities that exist in infrastructure. And so the people in our business are, again, have been focusing perhaps on commercial real estate, have the skills to participate in other types of infrastructure, design, program management and even construction management. So again, across the entire business, less than 3% is our exposure to commercial real estate. But if you sort of take a different cut at the business. Our exposure to business is to about 24% of our revenues from water, 35% from transportation, about just to say a little more 10% is from environment and, frankly, energy. And then the rest is our facilities business and construction management. And within our design business, 70% of that design business is actually public sector focused. So within that, our private sector exposure within facilities is very small. But again, when you look at that, that facility's exposure is spread across a whole number of clients. And again, it's not in the commercial real estate. It's in private sector and data centers in transportation, decarbonization activities. So it's fairly well diversified. So again, our confidence is fairly well spread across the business. And last four year is - our guidance takes into account our exposures to all of the businesses that we see globally.

Thank you.

And your next question comes from the line of Andy Kaplowitz from Citigroup. Your line is open.

Hi. Good morning, everyone.

Good morning.

Good morning.

I know you probably want to save this at the Investor Day, but since you're growing 90 basis points in margin in FY '24 and one-third of that is related to your restructuring cost out. Could we see that kind of impact as we move forward into '25 and '26? So you could see that margin growth after '24 and assuming somewhat similar growth to what you're going to do in '24. Maybe you could hit your 17% longer-term target by FY '26 or earlier? I know you want to keep it long term, but how do we think about that?

I'll tell you what, Andy, we're going to give - we'll give more detail at the Investor Day. So this is a plug for you to show up. But we're focused on actually continuing to expand margins in the business and then we set a 17% target. And so that's where we are headed over a longer period of time and the things that we've done this year will contribute to that. But maybe for a little more detail. I'll turn it over to Gaurav.

Hi Andy, thanks for that question. Of course, there's plenty of opportunity from here. And I think FY '24 is an example of that, where we added 90 bps of margin well ahead of our own expectations we had coming into the year and the long-term target we have put forth almost three years ago to already an industry-leading margin. So that clearly demonstrates the point. With almost two-thirds of that 90 bps increase coming from expansion is from our growth. It clearly indicates that we're operating from a position of strength practically in every facet of the business we operate from capitalizing on market opportunities, taking market share, including having 80-plus percent win rate on our enterprise critical pursuits and having the best technical professionals delivering solutions for our clients and communities, this is all really important because it's allowing us to have plenty of opportunity to expand on that 17% target. And as Troy mentioned, we'll laid out in more detail during our Investor Day, so look forward to that.

Yes. No, that's helpful, guys. And Troy, maybe just a little more color into your markets. Would you say the biggest drivers of growth are increasing IIJA-related funding? Or is it sort of larger program management jobs as you talk to like the Middle East? And have you attempted to disaggregate your markets, for example, how much is the market growing if they come growing 8% to 10%, are you growing 50% greater in the market? Like how do you think about that? And do you think you could continue to grow your backlog at current rates that you're doing it?

Yes. So first of all, just a little bit of background on our growth. As I said earlier in the call, about 94% of our business is in our design business, and that includes program management, about 6% relates to construction management. And so our backlog in design has been growing rapidly. And I think I used the stat that our contracted backlog up 50% and again, our total backlog is up by a similar amount. And so when we look at that breakdown, we do see the strength across our markets because we're seeing the pipeline of opportunities grow. I'm not certain that the pipeline of opportunities is necessarily driven the market, as you point out. I think it's frankly us increasing our exposure to our client spend and that's through program management. So we've been growing program management at disproportionately fast rate, and those projects are actually large and chunky. And so I would say that we are contributing to actually taking more of that client spend as our clients continue to invest. So we're probably doing a combination, too, which is a little market share and actually participate in our growth, which sort of puts us beyond where I would say the industry average would be.

But, Troy to be clear, you still see good visibility to design backlog continuing to grow from here in '24?

Absolutely. Yes. No, we absolutely do. You sort of look at where we are in terms of - I'll just use the IIJA as an example. And it's one example because across the world, we have our customer base actually continuing to invest strongly and announce even stronger investments in infrastructure. But on the IIJA, we started to see that come into the business. And so we're seeing that come into funding projects across the business, including design, and we actually see that pace picking up as we go through the next few years. So yes, I don't want to - if I did, I didn't give the impression that design is not going to be growing at just as faster rate. But I think it's our - again, I think we're accelerating beyond what the market growth is because we are exposed to more of the client spend. And then frankly, we are winning work at a disproportionately high rate. Our capture rate for the entire business has been over 50% for the last eight quarters. And capture rate - by definition, capture rate is for every $1 we bid, we win. And so we're winning out of every $2 in $1 of work, which is an extraordinary rate and up substantially from where it had been in prior years.

Appreciate all the color.

Yes. Thanks Andy.

Your next question comes from the line of Steven Fisher from UBS. Your line is open.

Thanks. Good morning. Just wanted to follow up on the program management discussion. Troy, how different does your program management pipeline look today versus a year ago?

So Steve, our program management pipeline is actually up year-over-year. And again, I don't have the exact stat, but approximately up about 20%. And so - and in fact, that's consistent with our overall pipeline being up 20% compared to the prior year. So sort of think about it this way is, the overall investment spend is going up consistently and program management is just a part of the client spend or part of the client's budget. So we're seeing - again, we're sort of seeing that similar improvement in our pipeline across the board. And then what is different for us, though, is we obviously now spend more time in the marketplace focused on delivering program management, and that is growing at a much faster rate than the rest of our business.

Okay. That's helpful. And Troy, you mentioned you're trying to grow your energy advisory and digital practices. What would you say your specific ambitions for the energy advisory and digital advisory for 2024?

Well, so digital advisory is a - it's a little bit different part of business. So we do have people that have provide you - provided what I call it digital solutions directly for clients. That the people that do that is have about 400 people that do it across the business. And that business grew almost 40% this year, and we see it growing at a double-digit pace. So it is a smaller business. But what that means is as part of our traditional projects, those skills, they actually become part of the traditional projects. And then they improve how we deliver projects or programs and they actually have a margin impact. So I wouldn't focus on - again, digital consulting is an important growth opportunity for us, but it's not incrementally going to send out in our results. However, as a result of what we're doing, we are continuing the progress of transforming how we deliver the work and that is contributing to our margin today, not in a way that is meaningful yet, but we see that eventually contributing to our margins in a very meaningful way. And in terms of the advisory business, we already do have a reasonably healthy advisory business today, but we see that there's a market opportunity in energy transition. There are certainly a lot of organizations, our customers private and public, that are setting ambitions but they need the help to get there, and they need to help not from a traditional management consultant. But from someone that actually brings a real breadth of technical expertise and actually experiencing delivery and understanding of the technology that exists today and the technology that will be available in the future to develop a long-term energy transition plan. And obviously, that's all supported by infrastructure development. And so we're in the process of building that group. We already have it up and running and operating but we would have similar ambitions that we do for program management to see that actually be a very significant business that we would call out in the future.

Thank you very much.

[Operator Instructions] Your next question comes from the line of Michael Dudas from Vertical Research Partners. Your line is open.

Good morning, Troy and Lara.

Good morning.

Good morning.

Troy, there's been some visible project delays and some uncertainty amongst renewable as your new energy markets and maybe even some in the reassuring though, there's certainly been an enormous amount of investment plans put forth there. Maybe you could share a little bit on like are you seeing any delays or some push out of concerns given those - some of those announcements, is the IRA and all the stimulus is really going to continue to support that? And what is the - across your practice exposure for AECOM and the new energy, energy transition, and is that one of the areas that you'll be looking to focus on to win more projects as we move forward?

Yes, Mike, I'm going to pass that question over to Lara.

Thanks, Mike. Across the world, I mean, we're seeing long-term growth opportunities across all of our core markets, the Americas, U.K. and Australia. And despite some setbacks in part of those geographies. Longer term, for example, even in the U.K., we're seeing £40 billion now allocated to rail projects in the North and we’re well positioned for some of those current pursuits. We're seeing Dublin Metro. We're seeing the [indiscernible] program with significant opportunities, 75% growth over the next five years. And then as you mentioned, I mean, in the U.S. between the IIJA, IRA, the CHIPS Act, we're now seeing a real ramp-up in infrastructure growth. Canada, substantial ongoing investment in public transport and also in Australia, we've got an unprecedented rail pipeline of $155 billion worth of projects. And we've had a number of significant wins over the last 12 months and well positioned for the future. And with respect to new energy projects, we don't do any work for developers in that sector at all. So our focus is predominantly on the energy advisory and the pull-through of other sort of design services.

That's helpful. And you - Troy you mentioned or Lara, you might have mentioned PFAS in your prepared remarks. Is that - are you seeing some much more acceleration in the opportunities there? Is that a above market or above-average growth driver for you given your - seems like your technology and execution leadership in that area? Certainly, you've seen more visibility announcement from the U.S. government and others to attack this issue.

Yes. Obviously, there are now - the regulatory environment is providing a significant catalyst for PFAS. And that's not just an opportunity for our remediation business but significantly for our water business as well. And we're seeing strong growth opportunities across the board for water. But PFAS is one of those sectors for which we envisage growth in the water business. because some of those toxic chemicals are present in all elements of the water cycle. So between environment and water and even program management, we're well positioned long term to capitalize on the PFAS opportunities. And some of the recent wins that we've had may be clean and a number of other very significant federal projects have us well positioned. And as you'll recall, this is not just a new play for us with our technical expertise goes back to 20, 25 years, but ahead of us is a very significant opportunity for sure.

Thank you, Lara.

And we have reached the end of our question-and-answer session. I will now turn the call back over to CEO, Troy Rudd, for some final closing remarks.

Thank you, operator. And again, I would just like to thank our teams for their hard work this past year and the tremendous results they've produced, which have created, as I said earlier in the call, certainty and consistency amongst an ever-evolving economic backdrop. So I thank you all for joining today, and I look forward to providing a more detailed update on our progress and some more information on our long-term guidance at our upcoming Investor Day in December. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.