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AECOM (ACM)

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AECOM Technology Corporation (ACM)

Q1 2019 Earnings Conference Call

February 05, 2019 12:00 PM ET

Company Participants

Will Gabrielski - VP, IR

Mike Burke - Chairman and CEO

Troy Rudd - CFO

Randy Wotring - COO

Conference Call Participants

Andrew Kaplowitz - Citi

Michael Dudas - Vertical Research

Andrew Whittman - Baird

Tahira Afzal - KeyBanc

Jamie Cook - Credit Suisse

Steven Fisher - UBS

Chad Dillard - Deutsche Bank

Presentation

Operator

Good morning and welcome to AECOM First Quarter 2019 Earnings Conference Call. I would like to inform all participants this call is being recorded at the request of AECOM. This broadcast is a copyrighted property of AECOM. Any rebroadcast of this information in whole or in 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. [Operator Instructions]

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

Will Gabrielski

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 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 refers to adjusted financial metrics as defined and reconciled in today’s earnings press release filed with eh SEC and the presentation accompanying this call. Today's discussion of organic growth is on a year-over-year and constant currency basis and as adjusted to exclude impact of non-core businesses.

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

Mike Burke

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 a discussion of AECOM's results and discuss the trends across our business. I will also provide an update on the strategic actions we have taken and continue to take to enhance the value of our record backlog. 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. Our first quarter results were ahead of our expectations on nearly all metrics. As a result, we are on track to achieve our fiscal 2019 financial guidance including our expectations for continued revenue growth, 12% adjusted EBITDA growth and $600 million to $800 million of free cash flow. Organic revenue increased by 5% this was led by a continued momentum in our highest margin businesses including third consecutive quarter of double-digit growth in the Americas design business and 17% growth in the management services segment. Both businesses are benefiting from favorable market conditions and near record levels of backlog.

Strong revenue growth and solid execution contribute to 16% adjusted EBITDA growth which was ahead of our expectations. Additionally, shortly after the quarter close, we completed the sale of an AECOM Capital property, which resulted in approximately 40% IRR and provides a strong start to our second quarter. Wins of $11 billion set a new high for the Company and had exceeded $6 billion for five consecutive quarters. Our book-to-burn ratio was 2.0, resulting in a record backlog of $59.5 billion, which is a testament to our competitive position and our investment in growth.

Our successes were highlighted by the contract for the $7 billion Terminal One project at the JFK Airport in New York City. In addition, backlog in Americas design business increased for the ninth consecutive quarter and we also delivered a 1.3 book-to-burn ratio in management services for our pipeline of qualified pursuits increased by 20% to $35 billion. The second quarter shaping up to be another stellar wins quarter including awards for two projects and building construction valued at approximately $1 billion each. As a result, we expect backlog will increase again in the second quarter.

The partial shutdown of the U.S. government had very impacts to AECOM in the first quarter. Approximately 25% of our total revenue is for the U.S. Federal government, primarily in our MS and DCS segments, nearly 80% of this revenue is for the DoD and DOE which are funded through this fiscal year and our work was not interrupted; however, the shutdowns impact was more material to the phasing of our cash flow which Troy will detail. Outside of the shutdowns impact cash flow met our expectations and we expect to achieve our full year cash flow guidance.

I also want to provide an update on the strategic actions we continue to take to maximize the profitability of a record $59.5 billion backlog. First, we have taken nearly all the required actions to achieve our targeted $225 million of G&A savings, net of estimated leakage and reinvestment we expect to reduce G&A by $140 million in total, including $85 million expected to be realized in fiscal 2019. These cost reductions are enabled by investments in IT systems, shared services and other efficiency drivers. With these actions and underlying market strength, we are on a trajectory to significantly enhance our margins.

Read the rest of this transcript on seekingalpha.com