Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- AECOM (ACM, Financial) increased the midpoint of their adjusted EBITDA guidance for the full year based on strong second quarter and first half operational performance.
- Net service revenue grew by 8%, with a 9% adjustment for year-on-year fluctuations in workdays, showing strong performance across key geographies and growth in environment, water, and transportation end markets.
- AECOM (ACM) achieved record highs in adjusted EBITDA, margins, backlog, pipeline of opportunities, and adjusted EPS, which increased by 13%.
- The company's cash flow remains strong, supporting a returns-focused capital allocation policy, including organic growth investments and returns to shareholders through repurchases and dividends.
- AECOM (ACM) is expanding its program management advisory services, aiming to deliver 50% of revenue through these services, enhancing technical expertise and market share.
Negative Points
- AECOM (ACM) incurred a noncash $103 million loss in discontinued operations related to revisions to estimated contingent consideration receivables recognized at the time of the sale of the civil construction business in 2021.
- Near-term election uncertainty in the U.K. has clouded the outlook for larger transportation projects, although the backlog remains at record levels.
- The company's business development investment in the Americas segment increased by 50 basis points as a percentage of net revenue, which may impact short-term profitability.
- In the International segment, fewer working days this year compared to last year impacted growth by approximately 200 basis points.
- While AECOM (ACM) is increasing its focus on program management advisory services, the transition may require time to fully realize financial benefits and market position.
Q & A Highlights
Q: Can you expand on the Canadian infrastructure program and the particular opportunities AECOM is focused on?
A: (Lara Poloni - President, AECOM) The Canadian federal government plans to double their funding for infrastructure over the next 10 years, focusing on rail and water projects. AECOM has strong capabilities in these areas and has achieved significant wins in transit and water. The long-term infrastructure outlook in Canada remains robust, with a book-to-burn this quarter of 1.1x, indicating strong backlog and visibility.
Q: Regarding the landmark data center win mentioned, could you provide more details on this and the outlook for data centers?
A: (Lara Poloni - President, AECOM) The win was with one of the major hyperscalers in the U.S. AECOM has a global scale relationship with all major hyperscalers and provides full-service capabilities globally. The demand for data centers is expected to grow significantly, not just in the U.S. but worldwide, which presents substantial opportunities for AECOM.
Q: What are the limiting factors for data center growth, such as power and permitting?
A: (Lara Poloni - President, AECOM) Power supply and supporting infrastructure can be limiting factors, but AECOM's comprehensive service coverage, including site selection, permitting, and transportation access, positions it well to address these challenges for clients. AECOM's global reach and full-service capability are significant advantages in winning major projects in this segment.
Q: Can you discuss the trajectory of business development costs and when margins in the Americas might start to grow again?
A: (Gaurav Kapoor - CFO, AECOM) The trajectory of business development costs is aligned with opportunities seen in robust pipelines across markets. AECOM prioritizes organic investments through margins, which historically deliver over 40% ROI. The focus remains on delivering consolidated margin targets, with strong backlog growth supporting future margin expansion.
Q: How do you see PFAS regulations evolving globally, and what are the potential opportunities for AECOM?
A: (Lara Poloni - President, AECOM) PFAS regulations are advancing faster in Europe and Australia compared to the U.S. AECOM's global team works seamlessly across borders, leveraging its leading position in environmental and water sectors to address PFAS challenges. Opportunities exist in both public and private sectors globally, with AECOM well-positioned to capitalize on these.
Q: What impact do you expect from the recent PFAS rulings on your business, and can you provide details on revenue recognition and average project size?
A: (Lara Poloni - President, AECOM) The PFAS rulings are seen as significant catalysts for growth, with AECOM's technical capability and market-leading position enabling it to capitalize on these opportunities. PFAS-related work currently represents about 1% of revenue but is expected to grow substantially. AECOM holds major environmental contract vehicles, positioning it strongly for future growth in this area.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
