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Q1 2018 Earnings Call

February 06, 2018 12:00 pm ET


William J. Gabrielski - AECOM

Michael S. Burke - AECOM

W. Troy Rudd - AECOM

Randall A. Wotring - AECOM


Michael S. Dudas - Vertical Research Partners

Andrew Kaplowitz - Citi Research

Jamie L. Cook - Credit Suisse Securities (USA) LLC

Andrew John Wittmann - Robert W. Baird & Co., Inc.

Tahira Afzal - KeyBanc Capital Markets, Inc.

Chad Dillard - Deutsche Bank Securities, Inc.

Robert Joseph Burleson - Canaccord Genuity, Inc.

Steven Michael Fisher - UBS Securities LLC

Brent Edward Thielman - D.A. Davidson & Co.

Robert F. Norfleet - Alembic Global Advisors LLC



Good morning, and welcome to the AECOM First Quarter 2018 Earnings 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 at www.aecom.com. Later, we will conduct a question-and-answer session.

I would like to turn the call over to Will Gabrielski, Vice President, Investor Relations.

William J. Gabrielski - 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 growth 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 take no obligation to update our forward-looking statements.

We are using non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our presentation, which is posted on our website. Please note that all percentages refer to year-over-year progress, except as noted.

Our discussion of earnings results and guidance excludes the impact of acquisition and integration-related expenses, one-time financing charges, the amortization of intangible assets, financial impacts associated with non-core businesses and assets, and discrete tax items associated with U.S. tax reform, unless otherwise noted. Today's discussion of organic growth is on a year-over-year and constant currency basis.

Beginning today's presentation is Mike Burke, AECOM's Chairman and Chief Executive Officer.

Michael S. Burke - AECOM

Thank you, Will. Welcome, everyone. Joining me today are Troy Rudd, our Chief Financial Officer; and Randy Wotring, our Chief Operating Officer. I will begin with an overview of AECOM's results and discuss the trends across our business; then, Troy will review our financial performance and outlook in greater detail, before turning the call over for a question-and-answer session.

Please turn to slide 3. We delivered strong first quarter results, building on our record backlog position entering the year, the growing momentum across our end markets, and continued solid project execution. Organic revenue increased by 8%, marking the fifth consecutive quarter of positive growth. Our performance was highlighted by 10% growth in our higher-margin Management Services segment, where our backlog has increased by more than 50% since the start of the fiscal 2017 year.

In our Americas Design business, we grew 3%, driven by our public-sector-focused transportation and water markets, where our clients are benefiting from increased funding levels. In our Building Construction business, we grew 22% and are on pace to achieve a fourth consecutive year of double-digit growth, reflecting strength in our core New York market and our successful expansion into new markets. Our EBITDA and EPS performance met our expectations, and we generated positive cash flow, consistent with normal seasonality.

Across the business, we expect this strong performance to continue. We delivered $6.1 billion of wins in the first quarter, marking the third time in our history that we have had quarterly wins of at least $6 billion. As a result, our backlog increased by 11% to a new all-time high of $49 billion. Wins were highlighted by a 1.5 book-to-burn ratio in our MS segment and strong contributions from our DCS and CS segments. With these accomplishments, we are on track with our outlook for the full year.

Before turning to our view of the business, I'd like to spend a moment highlighting the expected benefits from U.S. tax reform. Overall, we anticipate the new U.S. tax law will be a catalyst for our business. Specifically, our clients will benefit from a lower tax rate, repatriation, and immediate expensing of capital investments. Several companies have already announced plans for increased domestic investment, including the automobile manufacturing and high-tech sectors, markets where our capabilities position us to benefit.

For AECOM and our stockholders, the timing of tax reform couldn't be better. We have expanded our capabilities, invested in business development, and are executing on our strategy. Today, we are positioned to benefit from a period of synchronized global growth, increasing public support for infrastructure investment, favorable market conditions, and strong corporate balance sheets.

Accordingly, our confidence is high in achieving our five-year financial targets or a 5% organic revenue CAGR, a 7% adjusted EBITDA CAGR, a 12% to 15% adjusted EPS CAGR, and at least $3.5 billion of cumulative free cash flow. This plan supports our capital allocation policy, which includes achieving 2.5 times net leverage by the end of this fiscal year, at which point we expect to execute share repurchases under our $1 billion authorization. Through this policy, we are committed to driving industry-leading stockholder value.

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