AECOM(US:ACM)2023-05-10 00:53Financial Data and Key Metrics Changes - AECOM reported an 8% organic net service revenue (NSR) growth in the second quarter, with adjusted EBITDA reaching a new quarterly high and strong EPS growth [8][24] - The adjusted operating margin increased by 60 basis points, exceeding expectations for the full year [24] - Adjusted EBITDA increased by 14% on a constant currency basis [24] Business Line Data and Key Metrics Changes - The design business achieved a record quarter of wins with a 1.5 book-to-burn ratio, reflecting strength across both the Americas and International segments [9][25] - NSR growth in the Americas was driven by a 5% increase in the design business, with the adjusted operating margin expanding to 18.7% [25] - NSR growth in the International segment was 12%, with a book-to-burn ratio of 1.4 [26] Market Data and Key Metrics Changes - In the U.S., funding from the Infrastructure Investment and Jobs Act (IIJA) is beginning to flow, contributing to a major bridge replacement project [19] - In Canada, NSR and backlog growth are strong, supported by federal infrastructure investments focused on transit and green energy [20] - Internationally, the EU's Green Deal industrial plan and ongoing investments in Saudi Arabia and Australia are driving growth [21] Company Strategy and Development Direction - AECOM's strategy focuses on collaboration, expanding the addressable market, investing in teams, disciplined capital allocation, and superior value creation [10][12] - The company is positioned to benefit from mega trends in global infrastructure investment, sustainability, and energy transitions [13] - AECOM is exploring strategic options for its AECOM Capital business, which will be reported as noncore [25] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining organic growth and margin improvements, citing a disciplined approach to investments and a high-quality backlog [31][32] - The company anticipates peak infrastructure funding in the U.S. around 2027, with strong long-term funding opportunities globally [44] - Management highlighted the importance of diversifying away from commercial real estate to more stable funding markets [47] Other Important Information - AECOM has returned over $1.6 billion to shareholders since September 2020 through share repurchases and dividends [12] - The company has no bond maturities until 2027, with a strong balance sheet and free cash flow of $63 million in the first half of the year [27] Q&A Session Summary Question: Sustainability of AECOM's performance metrics - Management highlighted the ability to improve organic growth and margins simultaneously, with a focus on high-quality backlog and disciplined investments [31][32] Question: Confidence in fiscal '24 targets - Management expressed confidence in achieving targets due to a competitive edge platform built on organic growth, margin improvements, and disciplined capital allocation [35][36] Question: Infrastructure funding expectations - Management expects infrastructure funding to increase in '24 and '25, supported by various legislative initiatives [42][44] Question: Exposure to private markets - Management has diversified away from commercial real estate, focusing on more stable markets such as logistics and utilities [47] Question: AECOM Capital's strategic options - Management acknowledged the noncore status of AECOM Capital and emphasized the strength of the Professional Services business [49][50] Question: International market momentum - Management noted strong policy commitments to infrastructure in international markets, contributing to growth [58] Question: Organic growth potential - Management indicated that while organic growth has been steady, they are focused on balancing growth with margin improvements [64][66] Question: Trends in private markets - Management discussed the diversification of projects within private markets, focusing on transportation, water, and other sectors [68] Question: Investment areas for future growth - Management emphasized ongoing investments in people, digital tools, and artificial intelligence to drive future growth [72][74] Question: PFAS project opportunities - Management identified a $10 billion opportunity in PFAS projects, driven by regulatory changes and funding availability [76][77] Question: Infrastructure funding security - Management expressed optimism about the stability of IIJA funding, citing procedural difficulties in clawing back funds [79][80]