Good morning and welcome to the AECOM Third 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 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. [Operator Instructions] I would like to turn the call over to Will Gabrielski, Senior Vice President, Finance, Treasury and Investor Relations. Please go ahead.

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 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. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy and our outlook for the business. Lara Poloni, 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 good morning, everyone. I would like to begin by thanking our talented professionals across the globe. Through their dedication to our purpose of delivering a better world, we continue to create successful outcomes for our clients. Our teams are the best in the industry and we lead in every market sector in which we operate. To that point, earlier this year, ENR recognized AECOM as the number 1 ranked water design firm. We now hold the number 1 ranking of water, environmental engineering, transportation and facilities design. Today, I'm also excited to share that we moved up 2 spots to number 2 in ENR's ranking of program management firms. This reflects our deliberate focus on extending our competitive advantages with program management which is ideally suited for projects of increasing size and complexity. Based on the 20% growth in our program management pipeline in the third quarter, I am confident that we are on track to be number 1 in this category within the next year. Turning to our results. Our third quarter performance exceeded our expectations. As a result, we are increasing our earnings guidance for a second consecutive quarter. For the quarter, NSR increased by 8% to a new high. Our adjusted EBITDA and EPS increased by 16% and 23%, respectively and we delivered record quarterly margins. We also delivered strong cash flow in the quarter and on a year-to-date basis, free cash flow has increased by 32%. Importantly, our backlog is strong and our pipeline is at a record high. This provides us with significant visibility and is consistent with our view that we are in the early innings of a multi-decade secular growth cycle across our markets. This visibility gives us confidence in our future which underpins the increase in our fiscal…

Thank you, Troy. Our strong performance highlights the effectiveness of our strategy and the competitive advantages from our unmatched technical expertise. We have built a backlog and pipeline of opportunities that reflect strength across nearly every market in which we operate and provide substantial visibility. In the U.S., IIJA funding is ramping up. In the U.K., the government continues to prioritize investments in infrastructure, led by the transportation and water markets. In Canada, both national and provincial funding commitments for infrastructure investment remain robust and our backlog in this market hit another record high this quarter. Across all our markets, the multitrillion dollar investment needed to address current and future infrastructure challenges is gaining momentum, particularly for areas such as urbanization, the energy transition and sustainability and resilience. These drivers cut across all of our markets and especially the water and environment markets which account for 35% of our revenue. For instance, urbanization is driving demand for clean drinking water, energy-efficient wastewater treatment solutions and effective strategies for storing and reusing water supplies. The energy transition touches the environment and water sectors in various ways. This includes utilizing pumped hydro storage to enhance the value and reliability of renewable resources as well as addressing the water and environment-related impacts associated with mining the resources essential for electrification. Moreover, the rise in global flooding and droughts introduces new challenges prompting our clients to integrate sustainability and resilience more deeply into their planning and decision-making processes. A recent U.S. government report estimated that more than $630 billion of investment in water infrastructure is needed over the coming decades to meet these challenges which illustrates the scale of the opportunity. Of note, this estimated spend is 2x the projected need from just 10 years ago and includes significant increases for stormwater management and wastewater treatment which plays to our strength. A prime example of our leadership in addressing this need is our involvement in the Pure Water Southern California program which aims to create a sustainable water supply by purifying treated wastewater. Our team is responsible for managing environmental compliance efforts and program managing the development of advanced purification facilities at the wastewater treatment plant including approximately 60 miles of large diameter water pipeline infrastructure and pump stations. In addition, PFAS investment is ramping up, not only locally but globally. In fact, already in the fourth quarter, we secured one of our largest ever PFAS wins globally for a project in Australia. Across our number 1 ranked water practice, our pipeline of larger pursuits is up by 45% in just the last year alone which gives us confidence in delivering on our market share gain ambitions and goal of doubling our water revenue over the next 5 years. Importantly, these same dynamics are playing out across all of our market sectors and we are focused on capitalizing. With that, I'll turn the call over to Gaur.

Thanks, Lara. I am proud of our team's performance which has allowed us to increase the midpoint of our full year earnings guidance for the second time this year. This quarter was highlighted by strong organic revenue growth, further expansion of our industry-leading margins and 23% adjusted EPS growth. A key driver of these successes has been our culture of continuous improvement and delivering industry-leading margins while reinvesting in the business. Turning to the Americas segment. Net service revenue increased by 8% and our adjusted operating margin expanded by 50 basis points to 19.3%. Americas backlog and pipeline of opportunities continued to be strong with a third quarter book-to-burn ratio of 1.1, reflecting our high win rate. Wins were highlighted by strength in transportation where we were selected for several more transformative projects in both the U.S. and Canada, as well as the environment business which is benefiting from all aspects of infrastructure investment growth. Turning to the International segment. Net services revenue increased by 7%. Our 11.7% adjusted operating margin set a new quarterly high and we remain confident in further expansion ahead. Our tremendous growth and margin enhancement in the International segment over the past several years has resulted in a 26% compounded profit growth rate since 2020. This is a direct outcome of our focus on higher-returning and lower-risk markets and fostering relationships with key clients and partners. Building on substantial growth we have delivered over the past 2 years, we expect continued growth from here even with the reprioritization of funding in the Middle East and the pause in the U.K., resulting from the July elections. Importantly, the core growth drivers across our international segments are firmly in place. In the U.K. the new government has outlined its commitment to investments in infrastructure, energy transition and…

[Operator Instructions] Your first question comes from the line of Andrew Wittmann from Baird.

Okay. So I thought I would just ask a little bit about the revenue outlook. It sounds like the pipeline prospects are good. But I was just hoping you could just drill in a little bit more. When I look at the design only backlog that you guys report, this is what drives the bus at AECOM, the design only backlog at the end of the third quarter, I guess, in my calculation is up 3%. Long-term guidance talks about a minimum kind of organic growth rate of 5%. And so I was just wondering if there's anything to read between those 2 things, if there's a lot more book and burn work or prospects that are awaiting notice -- that you're waiting on to help give some confidence that 2025 will be in that long-term revenue guidance range.

Yes Andy, thanks for the question. So I guess, maybe the first point to make is, during the third quarter in the international business, what we experienced was we actually experienced, I'll call it, some clients repositioning their priorities and their funding and in particular, in the U.K. with the election that was called and a change of government, there's clearly a reprioritization of how the government is going to invest in infrastructure. And so I'll say that, that caused a bit of a pause. And in the Middle East, we also see the same thing. We also see our clients in the Middle East repositioning their spend. So we don't actually see that in decline but we see a repositioning. Moving from some projects that were completed and some other projects, I'll say, in the Middle East that had a very long time frame to them. And some of the funding on those is being repositioned to some other more important and more urgent projects, for example, being prepared for FIFA, for the World Cup. And so when we look at the international business, we really just see that reprioritization being temporary. It doesn't change our view on what the future will hold. And I think as we've said, our backlog, that we feel very positive about, it is growing and has grown at a faster rate -- sorry, our pipeline than our backlog. And so we feel very good about the future in terms of the international business and backlog. In the Americas, the Americas, the backlog growth has continued to be strong. And again, the pipeline is very strong. And as we look forward, for fiscal '25 and fiscal '26, we -- I can say that our backlog -- or sorry, our pipeline is actually significantly larger than our pipeline was at the beginning of fiscal '24. So we're seeing the opportunities accelerate in the Americas and putting that together for the design business. It means that we have a high degree of optimism and confidence in our ability to grow in the future. And the other thing I'd point out is that at least for the year, our book-to-burn in the Americas is actually over -- so for the entire year-to-date, it's over 1.2x. And our book-to-burn in the international business for the year is over 1x. So again, putting those things together, I think you can't read too much into a quarter and backlog in terms of our expectations and our confidence in growing in the future.

Appreciate that. I guess maybe just to build on that, I'd be curious with the record pipeline that you guys are citing today and your win rates staying at that around 50% range which is up over, over the past. I was just wondering if you're seeing, Troy, anything from customers on like political risk or economic risk that's slowing down the conversion from the pipeline where they're asking for RFPs or what have you, to conversion into actual contracts. Is there any change at all? You mentioned the stuff in the U.K., the Middle East, I understand that. But anything more broadly than that or even in the Americas where we have the election season here?

Yes Andy, it's a great point of our win rates. Actually, our win rates are at 50% or greater for the last 12 quarters. So that's been -- that's a bit of a change in the business. It's been fairly consistent. But more importantly, within our larger projects and we've defined that as greater than $25 million. Our win rate is significantly higher than that. And that's important because we've been sort of transforming the work that we do in the business and the projects that we pursue and they're larger. And so that actually does cause a change in the top it takes for an award to be made and to convert award to contract and begin those projects. So larger projects are, in fact, a little bit longer in terms of the time to actually get working on them. So I don't know if it's necessarily markets that are causing a change in how long it takes converting a bid to an award, to a contract and to work. I think that might just be a function of how we've transformed the business and the size and the nature of the projects that we're pursuing and that we're currently working on. The other part of that equation, of course, is larger projects mean that you work on them for a lot longer and you have significantly more visibility and it means that you also have significantly more upside or changes or change orders or additional work on those projects. So when you look at our backlog because of the transformation, it also means that we actually have a lot more upside in the backlog that we stated that will come through change orders and additional work on larger programs or projects during the course of the future years.

Your next question comes from the line of Jamie Cook from Truist Securities.

I guess 2 questions. Just the margin cadence that we've seen over the past couple of years. I mean, this year, your margins will be up, I think, 90 bps. I think you're up 50 bps from 2023 to 2022 [ph] relative to the longer-term guide of 20 to 30 basis points a year. Just given the strong performance we've had over the past couple of years, should we expect the margin growth to start to normalize more towards your longer-term goal of the 20 to 30 bps? Or are there still opportunities with some of the bookings that you're talking about? And these larger, more complex projects, maybe we can still see above average sort of margin growth as we're looking out over the next 12 to 18 months? And then just my second question, Troy, just because some of the things that you talked about with larger, more complex projects, et cetera, should we expect the design backlog to be lumpier over time in terms of the growth versus sort of the steady growth you've seen over the past couple of years.

Thanks, Jamie. I'll let Gaur take the margin question and then I'll cover the backlog question.

Thanks, Troy. So you're right. Over the past 4 years, we have delivered on our margin target every time. And over that period, we've gone from being laggards in our peer group to being head and shoulders above everyone in margin delivery. So we have been and will always be very focused on delivering on our annual target because it is very important to us that every dollar we put into our backlog today is more valuable in the future as we deliver it. And for this management team, to your point, the Q3 results were strong but it's just consistent with our expectations. And it's not surprising to us even while we continue on elevated business development spend in Q3 and year-to-date compared to our plan and I'm very confident that we will be delivering on the 90 bps increase that we had set out as a target year-over-year. And further, when you look at the backlog and pipeline growth opportunities that Troy just laid out earlier, it gives us great visibility for the upcoming future years. You combine it with our track record of executing on efficiency initiatives, I expect us to continue to deliver good strong margin growth in future periods consistent with the target we had laid out which is to get to 17% by end of 2026 and then we're going to be going at 17-plus percent thereafter and we have a track record of delivering it.

And Jamie, your question on backlog, it's a good observation because in fact, quarter-to-quarter, in terms of the dollar volume of bids because we're pursuing more larger opportunities, it is more lumpy. It is not consistent and linear like it is when you have a business that's pursuing, again, tens of thousands of smaller projects. So that is the case. But I think this year, in the second half of this year, is a little bit unusual because when you look around the world, it's -- so this is sort of the year of the election. I think that in the course of a period of 12 months, there's about 64 federal government elections taking place. And what that means is that means a little bit of bumpiness because as governments change, there's no doubt there is a change in your priorities. What we don't see when we look around is that there is any less of a focus on the long-term investment in infrastructure, in more sustainable and resilient infrastructure. I mean certainly, in the infrastructure to support a long-term energy transition. So that's, again, that gets to sort of the point you made about the lumpiness but also I think it's important to recognize that it doesn't change the long-term trends even though it might be a little bit more lumpy.

The next question comes from the line of Sangita Jain from KeyBanc.

If I can go back to margins. We know that you're kind of expecting revenue towards the lower end of your guidance but your EBITDA is still higher. So can you point to any specific areas where you're seeing profitability exceed expectations? Or is it more broad-based, I would say?

Sangita, this is Gaur. I'll answer that question. So our revenue growth is going to be within the range that we had forecasted to begin the year, 8% to 10%. Given the outline Troy has provided, we expect it to be in the lower end of the range right now. But what you're seeing is, the competitive platform as a differentiator we have created at this enterprise, at this company over the last 4 years, it allows us to extract great value for our shareholders and for our employees. And this is driven through a lot of different things. It's our focus on making sure we provide and capture on the best growth opportunities in the market as laid out by our global program management, where we're delivering double-digit growth higher than what we had expected 3 years ago when we set into that organic investment profile. Our advisory and digital businesses that continue to be very robust and responding to our clients' evolving needs. We're at the forefront of providing that. And then you combine that with our efficiency measures on our enterprise capability centers. Recall, this is where we provide great technical support to our teams where the labor markets are more abundant for us with our centralized support functions and other initiatives put forward. It really has created this great juggernaut of what we call a competitive differentiator in the marketplace from growth to execution and delivery.

I just want to add one point to that which is, our organic growth of 8% is a pretty significant accomplishment. Our 8% growth, organic growth for the year is probably the best growth we've had in the history of the company. But even more important, I think the thing that we're really proud of is the fact that we've been able to take 8% organic growth and turn that into 16% earnings growth in the business. And then through our deployment of capital which is, we think, is a high-returning and low-risk way to do it, we've actually deployed capital against that 16% earnings growth to get to 23% EPS growth. And for the year, our EPS is going to grow in excess of 20%. So we -- I think what we're proud of is the fact that we're growing the business organically but at the same time, we're actually turning it into a much -- again, growing profit at a much faster rate, deploying capital and even more important, investing through our margins and investing in the future of the business so that we have even more confidence in the future.

Got it. And if I can follow up with one on, Troy, you talked about elections globally and you talked about a record pipeline and larger bookings. Can you tie that all and tell us what you're seeing in the U.S. in particular, ahead of the election as you head into fiscal fourth quarter?

Sure. We're really not seeing any material change in our pipeline in the Americas, I'll say with one odd exception and that's in the New York metro market because with the withdrawal of congestion pricing in this past quarter, that, there was a lot of funding that was being put in place through congestion pricing that was going to drive some really important and needed infrastructure investment, in particular with some of the larger clients there. And so that -- I think there's a point in time where that's being sorted out, that infrastructure investment is needed. So that's the one place in our pipeline where maybe we see it being a little bit different and, frankly, this place unknown. But across the entire U.S. business, we see our pipeline continue to build. And what I said about fiscal '25 and '26 is for the Americas, that pipeline has been growing off of what we had seen in '24. And so we haven't seen -- we have not seen a change at this point in time.

Your next question comes from the line of Andrew Kaplowitz from Citigroup.

Troy and Gaur, can you talk about what maybe changed in your Americas margin between Q2 and Q3? Because I think you did 130 basis points better and only $30 million higher in sales and I think you still had higher business development expense in Q3. And then how should we think about Americas margin going forward? I know you want us to think about AECOM margins at the enterprise level but can margins still ultimately rise from current levels in the Americas in '25 and beyond.

So on the Americas margin, again, it's consistent with our expectations. And you're right, we don't take a quarterly view, we do take a annual view and we will be delivering our Americas margin consistent with our expectations and targets we have set. In terms of specifically in Q3, just remember, our second half across both businesses but particularly in the Americas, it's -- there's always seasonal impacts. There's more workdays, more labor hours. So your overhead is spread over a larger base. And when you, again, look at the great backlog, we have won over the 12 months in the Americas, pipeline continues to be really robust. It really allows us the opportunities, especially on these large projects that we've been successful in capitalizing and now are delivering. Our labor is running very, very efficiently on those projects. So I expect Americas to continue -- that same culture we have throughout the organization which is continuous improvement. Every year, we will continue to get better as we execute forward.

Helpful. Got it. And then, Troy, I think you mentioned, lumpiness is the word, to Jamie, as they get larger but is there any reason, given your pipeline of opportunity that you've been talking about in your current backlog that you really couldn't do the 5% to 8% organic growth in '25. And are you seeing any delays associated with the weaker macro in your private markets? I know you just mentioned congestion pricing in New York. Anything else that's changed quarter-to-quarter?

So first of all, what's changed quarter-to-quarter, the things that I think I've already mentioned which is, again, New York, the Middle East and the U.K. And we do see internationally, those things -- those issues as being temporary. In New York, I actually believe that will be temporary as well because we know that there's a significant amount of investment that is needed and is planned in the infrastructure in New York. And I'm positive that, that will be worked out. With respect to fiscal '25, it is premature for us to give guidance. However, I will say, based on our backlog, our pipeline, our consistent win rate that we have confidence in our ability to deliver on our long-term guidance in terms of NSR growth.

Your next question comes from the line of [indiscernible] from UBS.

Calling in for Steven Fisher. First question is, how do the margins in backlog compare to the margins you just posted for the quarter?

Yes, thanks for that question. We don't provide that information as to the margin in backlog. Now what I will point out is, we have the long-term margin growth targets of 20 to 30 bps every single year. But more importantly, in our Investor Day, we laid out, over the midterm, we do see our margin at the enterprise-wide going to 17% by the end of FY '26. So we'll be delivering at 15.6%, head and shoulders above anybody delivering anything in our marketplace right now. And we expect over the next 2 years as we exit 2026, we'll be at 17% and then margin to 17-plus percent. And I would like to take this opportunity again to maybe be redundant but I think it's really important. You look at our backlog record of our team, we have proven going from the bottom of the pack to top of the heap in delivering margins and we have a lot of confidence for all the reasons based on backlog, pipeline and efficiency measures that we will be achieving it year after year and after year.

That's helpful. And just my follow-up, what's the setup for spending on IIJA programs in 2025 at this point relative to 2024?

I can't give you a relative percentage but what I can tell you is that we see the IIJA funding being deployed in projects in our pipeline. So it's certainly -- we have visibility to that. So I'll give you a ballpark. We think that during the course of this year, the IIJA funding was about 30% deployed. And so it's increasing. I can't tell you whether the pace at which it's coming to the market is at a faster rate. And the reason is, even though our pipeline is growing, our pipeline is actually made up of funding from IIJA but also funding from state and local government clients and from our private clients. And so in aggregate, we see that growing. I would expect that the IIJA is supporting that growth in pipeline.

Your next question comes from the line of Michael Dudas from Vertical Research Partners.

Troy, maybe you can elaborate. You talked about your forays in digital consulting and the growth you've seen in the pretty large market over the next several years. Maybe some examples of what that is and how that differentiates and how that differs from your regular kind of consulting advisory work that you've been working for your clients?

Yes, certainly. I think Lara will answer your question.

Yes, sure. We're certainly -- as projects are becoming bigger and more complex which obviously plays to our strengths, where the pipeline includes a 70% increase in programs that involve digital consulting. So our revenues from digital infrastructure consulting have increased 70% year-to-date. And over time, we see this as a $50 billion addressable market over the next decade. So -- and for us, it cuts across all of our verticals, the opportunities for digital consulting in environmental remediation, in transportation and most importantly, in water and we had some great wins in the quarter. So for example, a $100 million data framework for the NHS in the U.K. But we really see this as a global play with substantial long-term opportunities.

Right. And then my follow-up would be, as you're looking at the pipeline in front of you and the backlog and conversion and the success of your organic growth, maybe you could talk about your staffing levels today, what you need to grow on an annual basis? And can you grow that at a lower rate than what your revenue, your backlog expectations are over the next few years, given some of the different dynamics and different services that you provide your customer base?

Mike, this is Gaur. I'll take that question. So yes, you're right. In our backlog, as Troy pointed out, right, our Americas backlog on trailing 12 months is up over 1.2 international over strong organic growth, over the last 2 years. It's still delivering a book-to-burn of over 1x and our pipeline is extremely robust across the board. So valid question as to our labor. This is again where -- point I made earlier about having a competitive differentiated platform because the war on talent in our industry continues to be very robust across the marketplace. But we're one of the few companies that can leverage our scale to advantage. And we've laid that out in how we utilize our enterprise capability center, right? These are not just detailed design centers. These are design centers across the world where we may not even have any operational platform anymore but there's great technical talent that not only helps us deliver these large complex projects but it also help -- these employees help us, their resumes help us win projects across the globe. And that's how we're going to be managing our staff while at the same time, being very focused on bringing on the best talent, great talent onshore at every opportunity we get.

Yes. And if I can just add. I mean the good news also is attrition is down. We're well below industry benchmarks and below the competitors across all of our key markets. So when you add that to the optimism that we see in the pipeline, where we're seeing, in terms of those large pursuits that Troy referenced, 70% year-on-year increase in terms of that element of the pipeline. So -- and that applies to growing all parts of our business as those projects become more complex and use all of our multidisciplinary services.

And that does conclude the question-and-answer session. I would like to turn the floor back over to the CEO, Troy Rudd, for closing remarks.

Great. Again, thank you, everyone, for joining the discussion today. And I'm going to end the way I started which is to thank our teams for the extraordinary performance in serving their clients and their communities over the quarter. We look forward to talking to you in another 3 months. Thank you.

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