Q3 2020 AECOM Earnings Call

Good morning, and welcome to the E Com third quarter 2020 conference call I would like to inform all participants. This call is being recorded at the request of E. Com. This broad cast is copyrighted property of E. Com any rebroadcast of this information in whole or part without prior written permission of E commerce prohibit.

As a reminder, E Commerce office, you know passing this presentation with sites I think investors section at Www Dot E. Com Dot Com later, we will conduct a question answer session to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question press the pound Keith I would now like it.

Nicole over to you won't be real ski senior Vice President Investor Relations. Please go ahead.

Thank you operator or like a direct your attention to the safe Harbor statement on paid one of today's presentation.

Today's discussion contains forward looking statements about future business and financial expectations, including expected and potential impacts of the cobot 19 pandemic 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 FCC.

That is required by law, we undertake 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, where available which is posted on our website.

As a reminder, we sold the management services business earlier, this year and attempt to exit our remaining at risk self perform construction businesses. As a result. These businesses are classified as discontinued operations in our financial statements.

Today's comments will focus on continuing operations unless otherwise noted.

Todays references to adjusted operating margins reflect segment level performance for the Americas and international segments.

We will refer to net service revenue or NSR, which is defined as revenue excluding subcontractor. Another direct costs, our discussion of margins will be on an NSR basis.

Otherwise noted beginning today's call is Mike Burke.

Thank you well thanks, all for joining us today I'm joined by tray, Rod, our Chief Financial Officer, and as we announced in June arc incoming CEO, Lora Baloney, chief executive or aboard me, a business and incoming president and Randy Watt ring, our chief operating officer.

Begin today's discussion with a high level summary of our results Troy Lahr will then review our performance and outlook in greater detail before turning the call over for question and answer session.

I'm proud of our people and very pleased with our Q3 F. why 2020 results for seventh consecutive quarter, we delivered double digit growth in EBITDA well hit every our free cash flow targets continuing to win great new work growing backlog and advancing our transformation into our industry's premier professional services firm.

For the third quarter, we delivered adjusted EBITDA of $187 million, which is an increase of 18% over the prior year and above our expectations for the quarter.

The benefits of our ongoing initiatives to expand margins contributed to this outcome.

Segment adjusted operating margin was 13.2% an increase of 250 basis points over the prior year setting a new quarterly record for the professional services business.

3.1 billion, a new project wins during the quarter backlog increased by 16% over the prior year remains near a record.

We have more than three years of revenue in backlog and record contracted backlog. This visibility provides us with many strengths to outperform including the ability to maintain a strong workforce and provide more certainty for our teams which include the best and brightest minds in our industry.

Troy, Laura Randy and I, all share pride and incredible efforts, our employees are making each day to address our clients' needs. Their efforts continue to make the difference in E com rising above an operating environment that changes almost daily because of the cobot 19 pandemic.

Given the tremendous progress, we're making was substantially improved financial performance and the smoothed leadership transition I plan to accelerate my departure from a ecomm and transition my responsibilities Detroit Rod on August 15.

While we were only six weeks into our transition try and Lora has already proven they are ready to lead. This company immediately I see no reason to further delay. This transition. We're all excited about what the future holds for eight come under their leadership and we are ready to accelerate the transition to two more quick we take advantage of the opportunities in front of us I remain highly competent.

The continued upward trajectory of the business under toys leadership, the transformation of our business is not yet complete but over the past two years, we have simplified our organizations through the sale of our management services business lowered our risk tolerance improved our margins by almost 500 basis points since F. why 18 and built the foundation Ford incredibly rich.

The only getting an agile business that allowed us to outperform our sector. During the pandemic. After six years. This will be the final time I speak with all of you as CEO Baker.

I want to thank our shareholders employees in all our stakeholders, everyone, who counts on the value E com creates.

I came to E. Com 15 years ago drawn by its purpose to build a better world and that time, we've grown from a private company with one and a half billion dollars your revenue to a public company a market leader with $21 billion your revenue last year.

Our innovation and expertise has given rise to iconic projects around the world from moderate airports ports and transportation systems to the rebuilding of the World Trade Center, while the look and focus more great company continues to evolve the purpose that aligns our professionals around the world is stronger than ever.

This has been particularly evident in our response to the Corona virus and the results we are achieving.

He commas built for moments like these and our Q3 results and F. Why 20 outlook highlight the momentum that through Troys and Lars continuing guidance will carry forward well into the future I had the most confidence that they will continue the incredible trajectory of our business that we have experienced over the past two years with that integrate into further detail underperforming.

I want to handed over to our next CEO Troy Rod.

Thanks, Mike.

I plan to get into additional detail about our financial performance and discuss our strategy.

But before I begin I want to offer a huge thank you to Mike.

On a Mike's leadership E com has experienced phenomenal growth and transformed the company into a market leader, whose innovation technology and infrastructure solutions are unrivaled in our industry.

He's inspired countless professionals, including me with his vision and strategic focus.

He's been unwavering in his commitment to shareholders as well as to our employees and our clients around the world, who rely on or council ideas and infrastructure.

Personally Mike has been a strong thought partner someone I have always been able to count on for constructive feedback I'm certain that will be a much better CEO for having the owner of working with Mike. These past six years.

Please turn to the next slide.

I've been asked what defines a great professional services business. My answer is always the same is the strength of the people within the organization enable that empowered by leadership to succeed in the marketplace that defines a great professional services business.

My viewpoint as affirmed by more than 11 years of experience at AIU calm and having spent my entire career at professional services organizations.

E Com as a great professional services business with a limitless featured.

As my role in the organization expands I'm fortunate to have the support of strong partners, including lira polonium the role of President and the rest of the executive team, we will continue to enable and empower the most talented workforce the industry to reach our full potential.

Today, you come as a critical partner to the world's largest governments companies and organizations, we're leading change in urbanization, expanding transportation networks, and transforming our environment and water infrastructure and keeping a safe.

It bears emphasizing we're consistently ranked the number one transportation and facility design firm and the number one environment from in the World, but you know we hold leading positions in several other market sectors.

For the past few years, we've taken several steps towards our transformation into a pure play professional services business.

We are de risking the business profile.

We are making investments in people and digital innovations to expand our market share and deepen our client engagement.

We have removing unnecessary costs from the organization three simple operating model, which improves our agility expands our margins and increases returns on capital.

Finally, we have a leadership team executing against a shared objective of building, a leading professional services firm and creating value for our stakeholders.

Our leadership team is executing several priorities towards achieving this vision.

First our commitment to our professionals is critical to our success.

We are investing in our people in innovation and fostering a culture that promotes equity diversity and inclusion contributing to the communities in which we operate and creating a culture of one E com.

As a global company, we have first and insight into the benefits of a truly diverse employee base and with it the benefits from incorporating different perspectives and experiences into our culture to create unique experiences for our people and our clients.

This point, we're advancing reverse mentoring programs and enhance internship opportunities along with enhanced community engagement programs and voluntary and efforts.

With more diverse teams brought to bear on our projects the best and brightest ideas will succeed within our company.

Second we are investing to lead our industry's digital transformation.

The pace of digital transformation has intensified because of coated and has magnified the benefits of our longstanding investments in IP and innovation.

Third we will work tirelessly to eliminate inefficiencies and to create capital to invest.

Plenty of opportunity still exists when they come for instance, or workplaces. The future initiative has identified an even greater opportunity to optimize our real estate portfolio in tandem with increased employee preference for greater workplace flexibility.

This is an opportunity both when he comes walls as well as an opportunity for us to help our clients adapt to similarly change in employee preferences.

We're also expanding our global shared services and design centers with greater proliferation of our digital solutions further in our ability to execute certain tasks from better cost geographies.

All of these actions are critical to creating capital to invest in our teams.

Finally through our investments in teams and innovation, we're building a highly cash generative and in during business model to maximize value for our shareholders. We're committed to our capital allocation priorities, including returning substantially all available free cash flow.

Please turn to the next slide.

Turning to our third quarter performance I'm really proud of how the organization has come together and with our performance over the past several months as Mike discussed.

We exceeded our expectation for EBITDA margins improved substantially over the prior year with strength in both segments and free cash flow was strong.

Our backlog has increased 60% over the prior year, creating even greater visibility into the future in June we saw the pace of award slow in certain markets as the impact of Covance spread. However, we were able to offset these pockets of weakness by leading or industry in covert related response work and by continuing to innovate and delivered.

For our clients.

Please turn to the next slide for discussion of our segment performance.

In the Americas organic NSR grew by 2%.

This performance was led by double digit growth in our construction management business and by market share gains in our largest design markets transportation and water.

However, other markets declined during the quarter, including in environment, which is more heavily weighted to the private sector in the oil and gas clients.

The Americas segment had a 17.9% adjusted operating margin, which marked a 340 basis point improvement over the prior year and leads or industry.

This is a new high for the business.

Backlog in the Americas segment increased by 18% over the prior year includes a record contracted backlog.

However trends in some markets are beginning to be impacted by funding uncertainty and slower client decision, making.

Our state and local clients are impacted by lower tax collections.

These clients came into the year with record revenues and rainy day fund the impact of Cobot has altered the lands.

It's important to note, though the well state budgets are under pressure, 95% of state Transportation Department funding is supported by specific user fees.

This funding is much more insulated unless discretionary than other markets were state general funds comprise the majority of funding.

One thing is certain.

States when they didn't infusion of capital to maintain or increase current spending levels.

Importantly, both parties have expressed support for an advanced proposal to replace the fast Act and support state and local governments as clarity around funding solidifies, we expect our state and local clients to act with greater certainty.

We remain focused on what we can control specifically in running the business is profitably as possible in any environment.

I'll now turn the call over Tilera for discussion of our international performance.

Thank you Troy, Please turn to the next side.

Well, the kosher organic and they saw declined by 3% declines in the UK in middle East along with stable trends in Hong Kong were partially offset by continued growth in Australia.

The tuner ends of our international margins continues to progress our adjusted operating margin in the third quarter was 5.7% a 50 basis point increase over the prior year.

You said that the adjusted operating margin has increased by 170 basis point, which is a particularly strong achievement considering the 2% decline inorganic any so I think it's same period.

When I see responsibility for the near region the opportunity to improve margins was apparent as a results. We conducted a comprehensive analysis of hours at construction and the return profile of the business in each of them markets.

This analysis resulted in action to consolidate our real estate portfolio in the region reductions to add DNA to eliminate unnecessary cost increase efficiencies and now ongoing exits of more than 30 countries.

To that end outperformance this year inside competent trajectory, we have driven $60 million if he today Gina savings in the international segment, we have focused the business on a based growth opportunities.

Our actions position us well to benefit as markets recover and recent large wins across the region have resulted in market share gain.

Backlog was highlighted by 6% growth in the EMEA region. We have made investments of the possible you to ensure we are well positioned on engineering work in the middle East and we have we established a leadership position in the UK well, we have successfully one positions on more than 250.1 it.

Positioning us well for future growth, including most recently securing a leading position on the 500 million pound full year services framework and transport for London.

In the middle East conditions in petropoulos onto countries are impacted by lower oil and gas prices, which is providing some resistance to go right.

Well, we continue to build a strong backlog of business and Mega project development in Saudi Arabia, including a more than 100 million dollar when in the quarter, which demonstrates how commercial successes and diversified our work on projects that remain a priority for client.

As we look across conditions in our international markets. There are pockets of strength contrasted against certain quite a bit related headwinds in various countries.

In the U.S government stimulus if it including the Neely one trillion dollar plan to pause last month.

Could provide free strong pipeline of opportunities over the coming is.

In the Asia Pacific region stimulus actions in Hong Kong and it started you had hoped to stabilize market conditions and backlog remained stable as a result.

I will cause it related headwinds in southeast Asia have delayed the types of award activity and May offset some of the growth opportunities we've seen other markets.

Importantly, our utilization in the region remains high you today and he saw has held steady with the prior year and our actions to reduce costs and drive efficiencies have resulted in year to date corporate ability, but he's ahead of our original plan for the yeah.

Before turning the call back to Troy I want to comment on my recent appointment as president partnering Detroit and be Great leadership team as we continue on our journey to create the best professional services business.

As choice it in his remarks, a great professional services business is defined by the strength of its people and his latest incumbent on this team to in Naples, and pallet basic said.

We must inside the best mines in the industry to fill the world's most complex and you make challenges.

We must measure what matters, such as client satisfaction and voluntary employee attrition and reward and celebrate winning.

Equally as important holding up sells and the organization accountable for delivering on our objective.

It is our job to evaluate opportunities and direct capital to the black projects and initiatives that will have the most meaningful impact. We must also I know when to make calculated investments and trust a change to challenge the limits of Washington possible.

Up to 25 used with eight com I am excited if ever got asked me too because I know that every challenge, we face and overcome builds an even stronger organization with dedicated people who are passionate about possibilities to create great E com.

I look forward to getting to know.

No.

And with that I'll turn the call back to Troy.

Thanks, Laura.

The next slide.

Turning to cash flow liquidity and capital allocation, our financial position is strong with a low risk business model strong balance sheet and highly cash generative business operating cash flow in the quarter was $186 million and free cash flow was $272 million.

This performance was consistent with our expectations and was highlighted by strong collections across the enterprise.

We also successfully collected $122 million as a result of the previously announced.

Favorable net working capital true up related to the sale of the management services business as a reminder, BMS cash flow during the first four months of the fiscal year was well below the contribution we expected international guidance. This was a timing only difference accordingly, we collected the working capital in the third quarter with no material.

Impact a tour results for the full year.

Debt declined compared to the second quarter and our gross leverage ratio declined from 3.1 times to 2.8 times further improving our financial flexibility.

Also please to report that we're continuing to take actions that strengthen our balance sheet and liquidity.

On July 30, Onest, we issued a notice of redemption tour holders over 5% 2022 notes redemption will be funded by the proceeds under our existing lower cost delayed draw term loan facility that we put in place last quarter importantly, as a result of this transaction the annual cash interest expense will be a proxy.

At least $6 million lower.

Going forward, we will target gross leverage of below three times, which we believe will provide us with the best capital structure to operate the business and to execute on our capital allocation priorities.

After investing in our people in innovation, our priority remains deploying substantially all available free cash flow to share repurchases.

Please turn to the next slide.

Want to provide a brief the brief update on our discontinued operations.

We are closely managing the operations of these businesses to ensure risk is controlled and the business value is retained.

To this point I'm pleased to report that the underlying profitability improved in both the civil and oil and gas businesses, which generated positive EBITDA.

Excluding additional cost to complete the alliant combined cycle gas plant power also generated positive EBIT da importantly, we achieved substantial completion on the aligned plant in July.

Our process to exit our at risk self perform construction businesses has intensified with several process is running in parallel through strong interest and exiting these businesses remains a top priority.

Finally, I am pleased to note that through our restructuring actions. This year, we have fully eliminated stranded costs associated with the sale of the management services business earlier this year and other businesses we've exited.

Please turn to the next slide.

As you've heard today, the businesses resilient and we're energized by the opportunities in front of us.

Activity has remained strong.

Even as up to 90% of our employees continue to work remotely.

Utilization levels are ahead of our pre cobot levels and our consistent with the levels that were contemplated in our full year plan.

With that we are increasing our fiscal 2020, adjusted EBITDA guidance to 722 $740 million, representing 11% growth at the midpoint.

Our guidance includes an expected $20 million negative impact from changes in foreign currency rates as compared to our initial guidance for the year. We continue to expect E comm capital to contribute $10 million of earnings this year.

We're also reiterating our free cash flow guidance of 100 million to $300 million and are confident that we will fall within this range based on strong quarter to date collections normal seasonal trends the tend to benefit our fourth quarter cash flow.

With that operator, we're now ready for questions.

[noise], ladies and gentlemen to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question press. The pound key your first question comes from Sean Eastman with Keybanc capital markets. Your line is open.

Hi, Jim Lehrer, Troy congratulations on the promotions and like all the best on your next endeavors, leaving on a high no cure this quarter.

I just wanted to start on the state and local budget element you called it out in your prepared remarks, Troy can you just level set with us on just how we should be thinking about the magnitude of the potential swing. There you know to the extent you know global stimulus.

Measures are delayed you know whether in the U.S. or internationally I mean, you know, whereas the exposure, whereas the concern and you know how big of the swing could that be on E. Commerce fiscal 2001 revenue trajectory in your view.

Yes, Sean first of all.

Thank you for the well wishes.

With respect to our state and local budgets that does represent about a quarter of the work that we do a quarter of the revenue that we have an overall professional services portfolio.

There's certainly as an element of that has been impacted by the shortfalls as a result to covert.

But on the other hand, we are seeing the again user fees starting to increase as people return to work and redo a return to traveling.

We also have a significant amount of optimism around what the federal government will do to support a transportation expenditures and in particular state and local governments in particular, the fast Act.

You know it will expire in September, but I, just think it's been a decades before that the transportation funding is going without being replaced so we certainly have confidence is something will be done to support.

Those transportation budgets and transfer to transportation expenditures and 21.

And in terms of state and local budgets again, we have some optimism around what will get done either from either political party.

Well I think more importantly from our perspective, there are things that we can control and I think the things that are are within our control that we've proven over the last number of quarters, we can manage our way through turbulent times times, when perhaps there is funding shortfalls within certain budgets so well.

We certainly don't have a line of sight to what the outcome will look like.

Certainly do have confidence in our ability to manage through it and then the other important part is we have a great platform and great professionals that allow us to what to two wouldn't work and from work based on what we've seen in the third quarter. We believe we've taken market share in the area transportation and water. So.

Got you know great professionals in the marketplace.

We are winning work and replacing the work that we've been delivering.

Even though there is uncertainty and state and local budgets, we have confidence and our ability to manage your way through a based on our most recent experiences.

Okay, Great. That's helpful and maybe just from a strategic direction perspective for you Troy as you said you take the big see you know a lot of sort of announcements on digital innovation.

New tools.

The primary focus for you here in the immediate term and you know maybe you could just detailed for US you know some of the early wins on digital that you can build on here that would be helpful.

Yes, certainly.

Thanks, again, I think if you sort of step back and look at the impact of the pandemic well, it's been a lot of work in difficult to manage through the environment that we're in.

It's accelerated a lot of the things that we've done two to work together and to work with our clients and a number of those things are based on what we're referring to is digital so we have been investing in allowing ourselves to have the tools to work together and with our clients in it in a in a digital environment.

Same time, we've been investing some of the tools that allow us to work with our clients.

And and to continue our clients to do the work. So a great example that.

He is you know we've we've developed software. So we have virtual virtual consultation with our clients we've put that in place and we've been using that for a number of of our clients. The most recent experience I can talk about his work we've done with Roche in Ireland and it's been entirely successful.

We also have been working on a digital environmental impact assessment tool and at the moment, we're piloting that it's the first ever I guess process that we're working with on the corps of engineers.

It certainly light years ahead of anything else, it's in the marketplace.

And you know it's available internally so we're starting to use that with clients to accelerate the the of the permitting process and we will be bringing that to public and we expect that to be used as a tool by government agencies in the future.

So those are some of the things that <unk> that we're working on.

But you know maybe just in terms of or overall thesis as we continue I'll Oh, let lora contribute some of that as well. So Larry if you have some of the you want to add.

Yes. Thank you try and thank you for the good wishes also Sean So I think when very strongly positioned without the development digital tools and just to further expand on Troy point, particularly in our transportation market. We have a lot of optimism about a and infrastructure led recovery.

Our teams around the world have done some great work in a recent examples that was the launch of the treats.

Tool, which is transportation resilient integrated passenger solution, obviously, a lot of uncertainty as comedians returned to public transit in particular. So this is a new technology platform that gives real time information to commuters and other alerts. So it's it's very timely that we're bringing that to market and we thought that to bear and one.

About projects in the Greater New York region, and as George said very strongly positioned in the environment business. A weird claimed market leader and also we have just ongoing development all bad digital library in our buildings and places segment, which is the other big part about business around the world. So I think all the tools will provide.

Continued sort of separation and differentiation for us and it's an area that we're going to continue to develop you know main business as well and scaling up even in our global design centers is a key part equal.

Building up that know how throughout our business. So I think it's a very important element about strategy.

I appreciate the color I'll turn it over thank you very much. Thanks.

Your next question comes from Michael that this with vertical research your line is open.

Good morning afternoon, or even for everyone and again, a world on Troy and Laura and a good good luck or Mike in your mix endeavors.

Thanks, Mike.

I'm, saying given your perspective as you know involve with major cities the local Port Authority transit.

Starts in San Francisco early.

No.

A lot of stuff going on obviously kobin related have you seen business. Some activity today. It seems like you've managed very well, but certainly the funding pressures, which may or may not come for watch for Washington.

And some of the caution that might be put forth amongst.

The government is running these cities you.

Do you sense that there's a normalization that will occur here through this were there will be some changes where it might have.

Maybe you need to just a little bit adapt to certain different areas too.

Back you're hearing the surface on on the government side Aaron's things.

Yes, so Mike.

I think it's again I think it's difficult for us to.

Provide those kinds of prognostications I think what we can say is that you know our people are constantly working with our clients in the metropolitan areas globally, and we're working with them to adapt to the environment, which is ever changing.

You know and as you look around the world I, we don't want to point out that you know there certainly are some areas around the world, where maybe there are some funding shortfalls and there's some uncertainty in that respect, but there are a lot of places.

Where we're seeing government support support the the infrastructure investment with with that would stimulus. So you know we are seeing that in places like Canada and Australia in Hong Kong you know, we're seeing a discussion of an investment and stimulus being made in the UK, which would support that market and then.

Again in the long run I think we have optimism around not just short term stimulus, but some long term stimulus.

Here in the United States to ultimately help support the required investment in infrastructure, but also to help you just getting people back to work in the medium term.

So again I couldn't comments on the changes in cities other than say that we're working with their clients and reacting to that.

And our professionals leaders are all doing that and that when you kind of look at the overall portfolio. We do have a lot of optimism about continued long term investment in infrastructure.

And in our in our private sector markets well, we've certainly seen in the environments and some of the awards in bookings being delayed we see that just being delayed so effectively pushing that work out to the right.

In our construction management business again, our backlog gives us good long term visibility into the future and we start we still are seen.

A pipeline of opportunities in that business. So overall I have a sense of optimism. The the short term it's difficult for us to make any re concrete predictions.

For those are very current remarks I appreciate those my follow up would be maybe terrific progress on the margin front, especially in the Americas.

And your National American numerous design business, maybe could you remind the some of the some of the ways that some of the methods you've had to increase that prison and have you I'm, assuming you've increased your global design. So I guess, that's been helpful too to contribute as some of that margin improvement and the again your long term goals appeared from your.

Remarks in the press release those are are achievable I'll leave it a little more comfort level on that.

Sure Yeah, absolutely headline there as we are absolutely confident in our continued ability to improve margins beyond where they are.

As we as we again certainly as we move forward to short term in the longer term.

Yeah, and make a comment just about the the a the the North American markets and then I'll turn it over to learn to make some comments about the international markets, but here in North America again, it's been a combination of things continued improved use of design centers.

Focus on streamlining the operating structure and and using global or sorry, our global business Service Center, even though we've had a lot of that were moved to and continue to be moved to Manila, we've been able to operate even in a remote environment and to continue to move to move those.

Those opportunities overseas.

And then the last point is obviously, a real estate footprint and you know as we've changed the organization, we set up the beginning of year to undertake an important real estate restructuring.

Which we've been proceeding with and we will complete that by the end of the year.

Sure I'll turn it over to you.

Yes, thanks to the question not so we absolutely focused on international margin improvement and I think when making good progress there. So as we said earlier you today margins, having crazy 570 basis points, we reduced as Jay noted by 16 million year to date.

Our plan for his jeannine.

And I think it's important tonight, when we've achieved that in spot or despite the substantial revenue headwinds that we've experienced particularly in the larger parts of our international business flat to he came in the middle layer. So.

And we also see opportunity to get to double digit margin performance over the next year. So just any color you question about how are we going to do it with some of the specifics there. So I think that's continuing to focus on the simplification and focus about within our portfolio. So focusing on those parts of the international.

Business that continue to both Ross the highest return on investment and simplifying that that focus so I think testament to that in recent times and certainly Bain the execution as you know the exit of and I'm 30 countries, you know you're paying portfolio greenpoint until there's a change that sapiens I think we will continue to.

Look in a very focused manner at.

Means all of which you see how are they had over done done all unproductive costs within our business and I think the.

Looking ahead at the what places if each office a potential to do that each terms about real estate portfolio in particular, and then I think and you touched on this Mike obviously, the GDS is continues to be a central element about margin improvement strategy. So just peachy, we stepped up the volume by 30% and we have you know even.

More ambitious target for next year as I said earlier, we will continue to Upskill those teams with the latest and best digital capabilities and know how and in the fall I would say we will continue to be relentless in terms of just continuing to carve out more market share in knowledge.

Focus markets for us such as the UK. So the fact that we have over the last 18 months or two years.

Achieved it applies on more than 250 frameworks in the UK. Despite post Brexit just spot pledged caused that environments. I think gives us a lot of confidence we're going to be able to attack that market and achieve greater margin.

Greater market share and strengthened our leadership position.

Coded and also the other.

For example that I think it's just a market leadership in Saudi Arabia, but we said a couple of even though we're going to focus on that market on the gets any developments and I think some of their recent wins and performance are testament to that as well so well I think we'll continue to be very focused on it and you know we've done it before we get it and a change.

You know similar sort of recovery and refocusing our business in Australia, we're off to the mining downturn that was a business that I looked after at the time. So I think we're in good shape to continuing price.

Those are very telephone answers a trailer thank very much.

Thanks, Mike.

Your next question comes from Andy kept pilots with Citi. Your line is open.

Hey, Good morning, guys. My Thanks for all your health and good luck Troy Meier congratulations.

Thanks, like you mentioned.

Just following up on on a couple of those questions. Usually you mentioned that your piece of orders slowed in June in the Americas, maybe you could quantify for US a piece of that slowed down and then you know you do come into that you can get slower order pace with contracted backlog up 13% year over year. So can you give us some initial.

Thoughts into your revenue growth visibility over the next few quarters I'm not asking necessarily for a guide for next year, but how much visibility does current UN contracted backlog growth give you and then how difficult would it be to grow your revenue and that's why 21, if there isn't a help from state and local stimulus.

Yeah. So.

The the best way can answer that is just starting with our backlog.

You know our visibility certainly an immediate and he said immediate term visibility comes from our backlog. So you know our backlog is up I believe 16% year over year from when we were last year. So.

You know that bodes well for the future and gives us visibility when you look at construction management.

Construction management give is very clear visibility to what the future will look like in our design business. Our book to burn has been over one over one one times for the year. So again that provides visibility into the near term.

When you start looking at the impact of of a.

Sort of how state governments will be funded how money will be spent in the short term. It certainly will have an impact on us.

But again <unk>. The most important point I can make here is that you know we've shown ourselves to kind of being resilient to manager ways through those short term fluctuations, but again as we move forward long term, we have very good visibility into what the future looks like for the next few quarters.

But that obviously you know around the edges, whether it's whether its growth or whether it's flat. So it has been this past quarter or perhaps maybe down a few points that will become clearer as we work our way through the fourth quarter and we start to see some more certainty around funding in particular markets.

Thanks for that Troy and I wanted to ask a follow up on the margin question you guys get very good color on your their respective segment, but you do have that long term guide out there up 15% EBITDA margin, we think about the Americas margin has been trending up you know into the high teens this quarter so needed. This.

Staying ability of that if we do see a little bit more muted growth here and then Larry and international again, you give good color around double digit margins over time, but let's say the markets stay weaken 21 can you still grow that international margin. Even if you had you know some headwinds on the business.

So it's a Andy maybe the best way I can answer that is we absolutely have confidence that we can continue to grow margins into 2021.

Just remember just from the actions that we've taken over this past year, there's a run rate benefit the carries into the subsequent year and then when you look at margins are good examples in EMEA, we actually have seen a contraction.

In that in the third quarter in our international business, but we have seen margins continued to improve so again as we look forward with double digit margins that we would expect to be able to accomplish over the next few years international business and with the combination of the success we've had in our our Americas business.

We believe our long term targets are entirely achievable.

Great and then just one quick follow up Troy you talked about <unk> basically increasing the focus on exiting you're at risk self perform construction business. That's content provide what does that mean [laughter] in terms of a process well.

Maybe just a just a few moments just kinda about history here, but.

You know when we were in the second quarter. We were involved in a process that were fairly advanced expecting transactions to close and some of those businesses.

Early in the third quarter.

Obviously with the impact of the pandemic all of those processes stopped those and those deals we're no longer available. So as we've started to see some some more certainty in terms of how the world is going to progress over the next few quarters.

As we've seen financing kind of become more certain in the marketplace. We've seen the opportunity to now take up those dialogues with groups of buyers and a and take all of those are all of those businesses to market together and so that's really what we're getting that is you know we've kind of got.

And to a point, where there is enough interest and perhaps enough certainty in the market, where some deals can get done and we are out in the marketplace with those businesses and in discussions with them with multiple parties.

[noise] appreciate got Troy.

Okay. Thanks.

[noise]. Your next question comes from Jamie Cook with Credit Suisse. Your line is open.

Hi, I'm, congrats try and Laura and best wishes T. Mike.

I have a couple of questions I guess my my first one I'm try I in the press release, you said you're committed to EBITDA growth in 2021.

Yeah, I'm, assuming we're not committing to the to the numbers, we put out at the analyst Day Mena Street consensus isn't there I don't think it's in your stock, but if you could just confirm that my second question I unless I missed it I don't think you guys. It dress sort of what's going on with it but the CFO.

You know roll, whether we're looking externally internally in sort of like a timeframe. There and then my last question Troy again, just because you are taking over I'm, assuming you're strategy will be the same that you know M&A is sort of off the table.

And how you're thinking about you know share repurchase thanks.

That was a lot Jamie So let me let me let me let me take that as there always is a lot try and keep it under half an hour.

Okay.

So.

First of all absolutely we are committed to growing earnings in 2021, but as you can appreciate with the uncertainty in the world. We're not at this point restating, nor giving guidance and we will do that and we get to November.

But again there is some softness in some of our markets their strengths in some markets and we expect some more certain their clarity to be around some of our some of our transportation infrastructure markets as we get through this quarter and a and again as I've said what gives us confidence is our continued ability to improve margins and achieve that improve.

Women and profitability, even where there might be softness or slowing in terms of revenue opportunities.

In terms of the CFO time, a timing again as Mike said.

With the accelerated transition we would expect if somebody to announce before August 15th terms as CFO.

And are we looking into externally as well or or should we view it as an internal candidate I I won't make any comments on it.

Okay.

And a in terms of strategy again as as you described there are no real significant changes in strategy for the business.

We are continuing the process to transform the company into a higher margin lower risk professional services business.

That is a highly cash generative business.

We again expect to continue to to grow that business and take some of the margin improvement and continue to invest it in margin improvement and inorganic growth opportunities and frankly create a virtuous cycle as we move forward.

Our our commitment still remains to return our free cash flow to our shareholders.

Over overtime.

That remains unchanged and a and ultimately what might be different is that some as a result in the pandemic. We've invested a lot of time and energy thinking about how the workplace of the future is going to change, how we work and might change and how it will change or industry.

And so that's gonna be not just simply removing some real estate, that's going to be changing the way that we think about and how we deliver work for our customers and our clients and we think that it will ultimately accelerate a lot of the digital transformation that is going on in our business and will change the way that we ultimately deliver work you know pausing greater.

Attunitys for us to continue to improve margins and drive up returning capital.

Business.

Thank you okay. Thanks, Jim.

Your next question comes from Michael Feniger with Bank of America. Your line is open.

Yeah, Michael Feniger Your line is open.

Yes. So I was on I was on mute sorry about that guys on just to kind of follow up on Jamies question.

Just curious Troy like what what are the guide posts that you're looking for in terms of this strategy on capital return. So I remember last quarter, you you mentioned capital markets hopefully capital markets have have stabilized.

Just in terms of executing that strategy is it the fast act that expires in the September is it November elections, you'll have a CFO in place in a few weeks. It sounds like would you want gross leverage to come down to a certain point I guess just pointed to the signs that you might be looking for in terms of executing that that.

Capital return strategy.

Sure.

So maybe just a few points are just starting with leverage you know our leverage gross leverage for the quarter was 2.8 times are under three.

I expect us to keep our gross leverage under three times the right leverage for US continue to operate the business and enables us to return capital to shareholders.

Again as I said as we saw more certainty over the course of the second half for this year in terms of our performance against our targets and our ability to drive cash flow that it would create more certainty towards an outcome of returning capital.

And again, we're committed to overtime deploying that capital to buying back stock.

But I will say at this time I certainly don't have any intention of front running any of our repurchase activity because it just simply increases the price at which we repurchased stock.

Okay fair enough if I could just a level level set on on bigger picture here Troy I know, there's as you're aware, there's a massive valuation discount to you and the premium design peers last last quarter you guys provided guidance when does premium players pulled out and you guys just raise your guidance today I'm sure.

Where there was a voice that adult and external kind of necessary. So you know Troy as you take over in the coming weeks I know, it's it's kind of executing the plan, but do you see anything structural with those peers have you got to transform your portfolio that that makes you feel there that discount is warranted or can't be.

Closed odd just commentary around that would be really helpful. As you take over in two weeks and maybe evolved the plan that's been set going forward.

I don't I.

I don't see any reason why there's a discount to our peers.

The very just blunt about it.

Simple you know we've been able in this business to prove that we have.

Fantastic professionals and employees in the marketplace, serving our clients, we're number one in transportation facilities and environment globally.

And we've proven our ability to operate and to drive margin improvement you know there are things that we can focus on that we've proven we can focus on that will drive the profitability of the business, yes, again as it sort of think about what we've been working their way through is.

We've had a a workforce that has been focused on keeping our people say for their family safe and our clients safe and delivering for our clients we've been focused on maintaining a workforce.

So that when the pandemic is over we emerge stronger than ever given the phenomenal franchises that we have.

And we've been maintaining the business tell health and achieving our targets. So I frankly don't see why there would be a discount and ultimately if the remains a discount will be in the market again buying our stock cheaply.

Fair enough try and just lastly, like I know, there's a lot of scenario as weve gone on with with 25% your business that state and local.

Just if we do just at levels that have a base case, if if we wake up and the fast Act is just like a you get a CR of one year or kind of horns too.

You post election, I I'm curious how you feel like you can manage through that is that steady as you go is that a negative outcome. Just anything you can kind of drill down on if that's an artist plays out just a one year extension with a little bit it helps and you need a in stages is that still positive snarled that.

He's keys for you that you can model through and not be great. Thanks for sure.

Look I think maybe just to try and highlight with a headline is.

We we obviously think about a number of different scenarios and we do a lot of different scenario planning as we have done throughout the entire pandemic.

And even under all of those scenarios, we have confidence in our ability to grow earnings in 2021 I couldn't pick on one single I didn't say this is a plus and this is a minus we manage the entire business and there is funding available in some places in our business that has improved and in some places where the some uncertainty but through all this.

We are confident of what we can control we're confident in the franchises. The people that are here and that we coughing and growing earnings next year.

Your next question comes from Steven Fisher with T V. S. Your line is open.

Oh, Thanks, and Mike Best wishes, congratulations to Troy and Laura.

Thanks.

[laughter] how are you thinking how are you thinking about the trajectory of the building construction business over the next couple of years are you anticipating are preparing for this to have.

Some some softness and what are the some of the things you can do to to mitigate a cyclical downturn and does it kind of hold the same strategic importance.

Framework, that's held in the last few years.

Yeah, even as we even as we look forward from where we are today, we see that business growing next year, and we think that it grows at a double digit rate and again, that's that's built on the strength of the backlog that we built up over the course of the last two years. It does give great visibility into the into the future.

As we look out beyond that we certainly there's going to be it a change in the nature of the opportunities that were pursue but what we've experienced that are last few years as we've moved.

You know into different elements of the business and focused on where our clients are investing in infrastructure.

So we'll continue to do that and so I think it's difficult. This point to say here's a long term view other than we know that it's a great franchise. We know that we have an ability to continue to serve those clients as they are investing in certain sectors of the market and we have a lot of visibility to the backlog in that business.

Okay and.

Certainly the size of the backlog is one of the strength of the company at the moment.

We are hearing from some of the.

Some of the peers about a slowing burn rate.

At the existing backlog, so I guess I'm wondering to what extent are you seeing that in any elements of your business be airports or.

They have the building.

Business and.

Kind of how you would be a are you would manage that from here.

The answer is across elements of the business. We are seeing deferrals of work the place sort of made mentioned earlier was just in our environment business, where we're seeing the largest and most obvious deferral of work, but it is happening I believe it is a short term phenomena certainly in the areas of transportation.

And water.

But what we are experiencing because again as I said you know in <unk> in those marketplaces. So far in the third quarter. We we believe we've been taking some market share. So our capture rate has been improving even as opportunities for award opportunities have been defer to move to the right.

So again, it's we have a lot of confidence based on the you know the underlying capabilities in the business and then you know through that through active management. We believe that we can continue to a two to improve the trajectory in the business health of the business.

Okay sounds good thanks. Thanks.

I can ask a question. Please press star 100 telephone keypad. Your next question comes from Adam Palmer with Thomason Thompson Davis Your line is open.

Oh thanks.

Guys. Congrats on another good Q3.

Thank you.

In the largest cities like a place like New York, What do you guys see it on the front and I mean I'm. The one hand, you have kind of a lot of talk about de urbanization someplace like New York, but on the other rates are super low.

So how do those two factors kind of play out.

As it becomes a difficult question to answer.

It depends a lot of there's again there are a lot of within within the city like New York, Obviously, we do a lot of different types of working a lot of different markets. If you referring to our construction management markets again, you know, we Oh, we we really see benefit in those markets just coming from change.

What you described are certainly on certain conditions, but it's not going to be a discontinued investment there's going to be investment that we put put forward overtime.

And our business is well positioned to take advantage of that but in terms of again construction management, we are seeing.

Opportunities in some of the major cities here in North America.

But we certainly are seen you know our clients think you are rethinking some of the decisions that they might be making for the future.

So you would say if you've seen any weakness has been more on the design side more southern construction management.

Again, I see that again as I said in her in a private markets you see it on the design side of private markets. We see the up we're seeing the weakness Okay. And then just kind of modeling question corporate SGN a.

But what's the a good run rate to use for that.

As.

40 million $40 million to $45 million per quarter.

Okay.

And then one last one just on the on federal spending in fiscal 21, I know the fed it's still a good client for you're not as big as it was when you had M.S., but what do you seen in the budgets for federal spending next year.

We're not we're not anticipating any significant declines and in a in the clients that we typically do our workforce.

Still good Okay think about that that's a you know.

Large large client we like the corps of engineers.

C and you just see than state more next year, yes, okay, great. Thanks to the color.

[noise] there are no further questions queued up this time acts in the call back over to Chief Financial Officer try right for closing remarks.

Good well look thank everyone for joining today just make a quick concluding statement you want to say that you know in this unprecedent time incredibly proud of the teams and our people here have pulled together and and work through this environment. It certainly instills confidence.

And as leaders in the organization into our professionals and our ability to achieve our the goals that we've talked about today.

We finished with a strong balance sheet strong cash flows record backlog and it does give us confidence as we move forward and expect growth in fiscal 21.

So again I think it went for joining the call today.

[noise]. This concludes today's conference call you may now disconnect.

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