Q3 2021 AECOM Earnings Call
Good morning and welcome to the AECOM. Third quarter 2021 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.
Prohibited as a reminder AECOM. Is also simulcasting this presentation with slides at the investor session at www.att.com/biz and later, we will conduct a question and answer session. If you have a question, please press star, then 1 on your touch-tone phone, if you wish to be removed from the queue, please press the pound sign or the hash key. I like to turn the call over to will Gabriel house keys, senior vice president, finance and investor relations.
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 undertake no obligation to update our forward-looking statements, we use certain non-gaap Financial measures in our presentations. The appropriate, gaap Financial reconciliations are incorporated into our
Impatient where available which is posted on our website, references to margins and adjusted operating margins, reflective performance for the Americas and international segments.
We will refer to net service revenue or NSR which is defined as Revenue. Excluding pass through Revenue, as a reminder, we sold the Management Services business in January 2020 and we sold the power and civil construction businesses and October 20, 20 and January 2021 respectively. The financial results of these businesses are classified as discontinued operations in our financial statements. Today's comments will focus on the continuing operations of the Professional Services business, unless otherwise noted on today's call to rewrite. Our chief executive officer will begin with a review of our strategy and Kia
Compliments Lara. Poloni our president will discuss key operational priorities and guards. Kapoor our Chief Financial Officer will review our financial performance and Outlook in Greater detail. We will conclude with a question and answer session with that. I will turn the call over to Troy Troy. Thank you will and thank you all for joining us today. I'd like to begin by acknowledging the continued. Great contributions over teams globally. In many parts of the world day-to-day activities are beginning to resemble normalcy. However, the pandemic and it's variants can
New Impact, our teams and their families.
Against this backdrop. I'm proud of how we are collaborating to deliver for our clients and communities. As the COVID-19 variants spread, we all need to remain agile until we reach a point where the threat from the virus is eliminated. We have the best teams in the industry and our Focus remains on keeping our people safe, and enabling them to be successful in their careers, turn into a discussion of our performance for themes, are apparent across our business first, our third quarter results, extend, our track record of delivering
Our financial and strategic commitments. And with our strong, year-to-date performance, we are increasing our guidance, our fiscal 2021 and we are increasingly confident in delivering, our long-term Financial targets including doubling adjusted earnings per share from fiscal 2022..2024 second the success of our think and act globally strategy and investments in our people and Innovation are contributing to accelerating growth. In fact, our design business that accounts for approximately 9.
80% of our Prophet organic NSR, and backlog growth are at the top of the industry and are strengthening pipeline pretends. Well for continued leadership. Third, we expect to deliver strong results into the future built around, secular growth, themes, centered on infrastructure, and ESG driven opportunities with our increased focused on advisory and program management. We are engaging with Clyde's much earlier in their planning for large Investments and we are advising them through the execution.
Which expands our addressable market and finally, we remain committed to creating shareholder value by investing in growth and Innovation and enhancing per share value by allocating substantially all available cash flow to share repurchases. We believe these are the highest returning use of capital as compared to large scale MMA, where today's deal multiples are elevated. And the execution and integration risks are higher
Turning to our results, we exceeded expectations on every key measure.
Sorry, increased for a second consecutive quarter including accelerating growth and our design business in addition, backlog, and the design business increased by 8% and included..7 percent growth. In contracted backlog, which is a leading indicator of Revenue growth.
Our adjusted operating margin reached a new high this quarter at 14.1% an increase of 90 basis points from the prior year with this, uh, performance. We now expect to exceed our margin guidance for the full year. This performance includes growth in higher margin projects and efficiencies, and how we deliver. And he's creating the capital to invest in our teams and innovation
As a result of this revenue and margin performance adjusted ebitda increased by 15% and adjusted EPS increased by 33 percent.
We're also continuing to convert our earnings to strong cash flow. We deliver the highest third quarter and year to date free cash flow in 4 years and consistent with our Capital allocation policy. We re purchased approximately 12% of our shares outstanding as compared to last September when we began our repurchase program.
Turning to our backlog in pipeline funding across our Market is improving and our investments in growth. Our berry fruit, we delivered 3.7 billion dollars of wins and we had a greater than 1 book to burn ratio for the Enterprise for the first time since the pandemic began.
With the strong performance backlog in the construction management business increased sequentially albeit modestly for the first time in several quarters. In addition, our pipeline of opportunities, in our America's design business has increased by double digits since the beginning of the year and the international pipeline increased by single digits. These are great signs for the health of our markets, and the success of our strategy
The strength is before, any material contributions from previously enacted stimulus funding. And we do not include any benefit or a guidance from the proposed infrastructure bill in the US.
Please turn to the next slide.
Our accomplishments. Reflect the benefits are think and act globally strategy, and our focus on growth over the past. Several quarters, we have prioritize investments in growth markets, simplified our operating structure and eliminated in efficiencies today. We are a more agile organization and we are benefiting from stronger collaboration across the business. We've also invested in our key count program to ensure we deploy the best practices to all of our clients, this will be critical to outgrowing the industry.
All these efforts have resulted in strong and assess our backlog and pipeline growth.
Another key component of our strategy is leveraging. Our industry-leading margins to invest in our people and Innovation demand is accelerating a majority of our largest markets and a comment others in our industry will be increasingly challenged to attract and retain the strongest talent. In fact, our growth is past quarter was constrained in some areas by the pace of hiring relative to increase demand.
And what is noteworthy is that this constraint is apparent even as our pace of hiring has doubled as compared to last year.
Is it?
During our industry. We have certain advantages against this backdrop first. Our Workforce is global and we can drawing This Global expertise to deliver anywhere in the world. Due to the Investments, we've made in technology to enhance collaboration second. We're also investing professional development programs, so our people can grow within a calm
Third, we are using technology to extend the capacity of our teams and to deliver in new and innovative ways. And finally we've implemented flexible work policies to provide our people even greater freedom to deliver for their clients in ways that work best for them and their teams.
All these efforts are centered on creating a culture with the industry's top talent can begin and build meaningful careers.
As we look ahead several Trends, support our confidence and growth. First we are winning and delivering critical projects that highlight our strong position in key growth markets. Most recently, these include the first ever digital neap of compliant environmental impact statement for a transportation client in the u.s. showcasing our investments in Innovation, and digital Solutions.
Additional wins with major metros to advance more modern and Equitable transit systems.
Chi wins to advise clients on their long-term sustainability and resilience strategies. He wins in Next Generation energy, a smaller, but rapidly growing practice with a nanny cam. That includes a presence in the Northeast offshore wind market wins in the healthcare sector. That further broaden our client base and large program management wins for multi-billion dollar programs across the globe.
Second through our sustainable Legacy strategy and commitment to ESG, where distinguishing ourselves in the market as our clients Advanced complex multi-decade initiatives. In fact, your today, there are being a record number of corporate commitments to emission reduction. Targets outpacing last year's total already and sustainable Bond. Issuance has are at an all-time high.
AECOM is a leader in advising clients and delivering Technical Solutions to support ESG goals.
Today we estimate approximately 70 percent of our revenue is directly related to ESG initiatives. Well, nearly all of our review has at least some ESG element as a driver, we are leaders in green Advanced facilities, Design Energy Efficiency, Next Generation, energy sustainability, resiliency, environmental, remediation, Clean, Water Systems, and Transit electrification.
Our services in these markets are in high demand and our leadership, in these fast-growing markets, underpins our confidence in organically outgrowing, the market well into the future. Finally, our public sector clients across the world are benefiting from strong, budgets and Investments. And infrastructure markets, where we lead.
In the u.s. strengthen state and local tax receipts, strong Federal funding and ongoing stimulus. Measures are contributing to an improving environment for growth. Similarly, our International markets are prioritizing infrastructure Investments, especially in our largest and Market transportation in Australia, the New South Wales. Government is Advanced. Any 130 billion dollar package for 4 years of Transportation spending? Well in Canada. There's more than 20 billion dollars of public transit and green
Actually spending.
And in Europe, the 1 trillion dollar Recovery Fund requires 30% of spending to be dedicated to green and sustainable infrastructure.
These initiatives are before you factor in a potential, US Federal infrastructure bill. In our largest market, as currently proposed, nearly every line item in the current draft would be addressable by a cam in conclusion. I want to remind, We Are The Number 1 Transportation design firm. The number 1 facilities designed for the number 1. Environmental science and environmental engineering, firm have grown to number 2, in water and lead in several other end markets. All
For secular growth. No firm is better. Positioned to capitalize on these opportunities.
With that, I will turn the call over to Lera.
Thanks Troy. Please turn to the next slide. We are building momentum within the business. As a result of our strength and culture, and strategic alignment..1 area where this is a parent is in growing demand for ESG, related services. In April, we launched our sustainable Legacy strategy to ensure we embed sustainability and ESG into all elements of our business. This included our commitment to achieving science-based net carbon Zero by 2030 expanding diversity and inclusion.
Also have company and advancing the impact we can have on the World by embedding carbon reduction principles into our work for clients since launching sustainable legacies. It has been exciting to see how passionate our people are to create a positive impact in their communities and what it means for us in the market. For example, we were awarded a sizable Transportation project in the quarter to modernize a Transit line for a client in the US, the ultimate determining factor in our selection, was our sustainable Legacy.
Strategy and the community building and ESG elements of our proposal. This success, underscores how we are building stronger competitive advantages. We continue to advance our think and act globally strategy to ensure we focus on the highest growth and margin opportunities while investing in our people, and Innovation with demand for our services. Increasing, we are focused on bringing new talent to a calm and investing in our teams to create the culture. Troy spoke about earlier going forward,
We are focused on ensuring we have the strongest Workforce which will be critical to the capturing the full benefits of increased demand. We also continue to make investments in our digital platforms and services to extend capabilities and enhance our team's productivity. We can deploy Innovation at scale to enable our people to use their hours. Most productively for their clients. We already have several hundred digital Consultants within a column that are helping clients progress, their own digital Transformations. This is all part of
of the more than 1,000 digital practitioners. We have across a calm working to ensure we remain an innovator in our industry. A great example of this is our plan engage platform that has enabled the first ever need the compliant and fully digital environmental impact statement in the u.s. our solution streamlines the engagement process and provides higher value services for our clients. Our investments in these digital Solutions and Innovation will continue to be key. Differentiators as
Demond, accelerate importantly we know where you're headed in the right.
Direction as our people and our clients are responding favorably. I am pleased to report that our client satisfaction scores reached the highest level in our company's history. There's a quarter and I have no doubt that this will translate into a continued high winrate and growth going forward with that. I will now turn the call over to Gar to discuss our financial performance and Outlook in Greater detail.
Thanks Laura. Please turn to the next slide, our third quarter results, reflect another quarter of strong performance Revenue, increased and included accelerating growth. In our design business, our Pipeline and backlog grew margins reached a new high and continue to lead the industry and earnings increase by double digits. Our year-to-date performance as at the upper end of the industry and looking ahead our strategy, inspires confidence that we will build on this lead.
I want to touch on a margin performance compared to our fiscal..2018, margin, our third quarter segment, adjusted operating margin of 14.1% marks, a Flight 840 basis, point Improvement
Aunt, with increased delivery of higher-margin work and our operational improvements. We expect to exceed our prior 13.2 percent margin guidance this year, and we are confident in delivering our fifteen percent by 2020 for gold and longer-term, 17% aspirational Target.
I am equally pleased to report that we have delivered more consistent. Cash flow phasing. This was a real focus of ours this year and the organization has responded. As a result, we already have been able to deploy substantial Capital to where share repurchases and continue to take actions that improve our cost of debt and extended the duration of our debt maturities well into the future.
Please turn to the next slide. In the Americas design, Revenue increased for a second consecutive quarter. Total MSR decline slightly due to the expected Decline and construction management business where we saw the deferral of a number of projects over the past 18 months.
however, this trend is improving as evidenced by our sequential backlog growth and growing pipeline of Pursuits,
Importantly, backlog in the Americas design business increased by 8% our investments in the business development are translating to a higher wind rate on our work, and our pipeline, also increased by double digits and start of the year.
The adjusted operating margin was 18.9% 800 basis point increase from the prior year to a new high probability. In both the Americas design and construction management businesses was strong, please turn to the next slide.
Turning to the international segment RNs are increased by 7% are adjusted operating margin. And third quarter was 7.3% 860 basis, point improvement from the prior year, and more than 500 basis, point Improvement since the beginning of fiscal 2019,
This progression provides us confidence in our ability, to achieve double-digit International margin Target. Please turn to the next slide turning to cash flow liquidity and capital. Allocation, our third quarter free cash flow of 295 million. Mark, the highest level in 4 years. Putting us on a strong path to achieving our full-year guidance of between 425 million and 625 million.
With our strong.
Cash flow. We have executed stock repurchases at attractive prices since September 2020. We have repurchased 930 million of stock which represents nearly 19 million shares or 12% of our starting, sure balance.
in addition, we have strengthened our balance sheet through a number of actions taken to lower the cost of our debt and extend our immaturity
During the quarter, we completed the tender and Redemption of all 2024 senior notes. We now have no maturities until at least 2020.6 and are operating with a high degree of financial certainty. While driving a benefit to the bottom line. Finally, while we have incurred costs related to the tender and Redemption of the 2024 notes, the npv of the transaction was very positive and accretive to earnings per share.
Please turn to the next slide.
with our year-to-date outperformance, we are raising our adjusted, even our guidance to between 810 million and 830 million or a 10 percent growth at the midpoint,
We are also increasing our adjusted EPS, guidance for the full year to between $2.75 and 2 dollars and 85 cents or 30% growth at the midpoint. This is the third increase to our EPS guidance this year, despite the challenges posed by the pandemic and Associated macroeconomic Trends are teens are delivering
This guidance does not contemplate any additional repurchases, although it is our plan to continue to buy back stock.
Finally, I should note that our fourth quarter comparisons will be impacted by the extra week. We adjusted out of our growth rate in the prior Year's fourth quarter. This impact should be considered when modeling and analyzing eurovia year growth trends for the coming quarter and extra week is approximately 7 point 5 percent of our quarterly n Sr with that. Operator we are ready for questions.
Your first question line of Sean Eastman with keybanc capital.
Hi guys, nice quarter, and nice update here. I just wanted to start on the on the top line. I mean, you know, double digit growth in the Americas pipeline. Maybe if you could just comment on how that pipeline is converting to Awards, I mean booked a bill of 1.1 times is is great. But do you guys see a kind of a step change coming in terms of the conversion of that pipeline to Awards? What needs to
Out. Then what what, what kind of timeline are you thinking about around that Dynamic? Yeah, Sean stroy. Thanks for the question. I'm going to give you. I'm going to give you a little bit of detail on this sort of build into that answer. But we've actually seen the trends improving within our markets and within our backlog. Over the course of the last few quarters. And then behind that, as we said, the focus this last year is actually been gaining market share. So,
So well we're seeing our backlog improve a percent in particular in our design business and we're seeing our pipeline increase actually in the Americas at double digits and internationally and mid-single digits. It is lining up for us to have a improved growth opportunities in the future. And then you combine that, with what we see, in terms of our ability in gaining market, share and are higher.
Great terms of the win rates on the proposals.
We're bidding. I think it indicates that we're going to see an acceleration for growth in 222 and, and certainly beyond that. But as I look back over the last 2 quarters again, as I said, I think we've, I feel like we've hit a bit of an inflection. We did grow a little bit in our design business, which is 90% of our business in the prior quarter, 3 percent this quarter. And when I look at across our peer set, you know,
The organic growth around our peer set was actually a decline of mid-single digits. So I feel like we're gaining ground and we've actually hit that inflection point and then, you know, lining up even behind that for us and for our entire industry here in the US. I think we all have confidence that the infrastructure bill is likely to finally be passed which will obviously create Federal funding that we're exposed to very significantly but also it will inspire
Some confidence, when our state and local clients who with that, certainty of federal funding will be able to commit to projects. And so you know that all leads to the fact that I think we've started to hit that inflection point and as we move forward I would see as I said in my prepared, comments growth. Accelerating. And again just a reminder is you know when we prepared our comments we didn't see the infrastructure build getting through Congress. I think we're a little more optimistic about that now. So that certainly was not
Built into our forward-looking guidance or thinking about the future. So, that's sort of a little bit of tail wind. That was that we hope will be expected in 22 and Beyond. Okay, that's helpful. Thanks Troy. And then, you know, just have to comment on the the margins, you know, being quite outsize, particularly in the, in the Americas this quarter, could you maybe update us on how we should be thinking about trajectory from where we are exiting
Kind of in the mid 13 percent range, exiting fiscal, 21 toward the 15% by fiscal 24. I mean, is this kind of an outsize performance this year, or should we think about kind of an even sort of 50 basis points annually toward the 15% at any, any thoughts there on, you know, maybe how we're comping into next year from a margin perspective? Yeah, let me turn that over to guard.
Hey Sean in terms of our margin in the current quarter there was nothing 1 time or peculiar to call out. In fact it's are focused result of our focus on core markets. Focusing our BB in those business lines, where we expect meet our growth margin and cash hurdles. And it allows us then to deliver on these higher margin projects and you combine that with you know the efficiency cost.
Initiatives, we've had. It gives us
Audit confidence to your point as we look forward to achieving, our 15% 2024. Target, we expect that the margins are going to continue to from a trajectory standpoint over the next couple of years as we as we come up to the 15% and then March continued to March forward on our longer-term. Aspirational Target up, 17%
Okay, thanks. Thanks again. Nice update. Thanks guys, thanks so much.
your next question line of Andy Whitman with Baird,
Oh great. Thanks for taking my question. I tried you had a comment in your prepared remarks about some hiring challenges. Yeah. Well that may have actually contributed to sounds like you, you could have recognized even more Revenue, so just just wondering if, if you could give us some direction order magnitude about how much that impact you were those internally missed opportunities because you didn't have those people, or they just going to have to be delayed and worked on in a different Corner rather than this quarter. And then if you just talk,
But the the kinds of end markets or geographies or those labor challenges are occurring. You know, it's interesting because it seems like at least it seems broadly. Speaking that most of the labor challenges in the marketplace are for lower end jobs and obviously you've got professionals here. So I think your commentary on this is would be helpful. Thank you. Yeah sure. Thanks Andy for the question. So yes, we are. I won't say that it's it's it's a cross.
The world where we're seeing those challenges in hiring, but in certain places in our business and in certain markets, we are, you know, we are seeing it being more difficult to to to hire people into the business and again, across some of our businesses, we certainly have, you know, I'll say people that perform different types of of work. And when you look at our environment business in particular, we certainly see that in some of the work that we do in terms of remediation that we've had some challenges.
In hiring into that business but you know, I get I bring that up not because it's material to our results for the quarter. But as we move into a higher growth environment, I think it becomes more important and you know how we're thinking about it, but obviously, as we continue to need, we need to to bring people into the business and to keep the people that are here, that is a priority for us and we're focused on creating a great place to work in.
Invested in the development Technical and professional development of our people and creating an environment where we create flexibility for them. So that is a priority for us but the other things were doing and focused on is making sure that we can balance work around the world. Because in the past, in the business and in the industry, you know, there's been ups and downs. You have a hot Market, people hire into it and things slow down and your you have you know a few too many people in the business. We're
looking to make sure that we take advantage of what we've learned over the last 18 months so that we
Evenly Share work across the entire business, which I think helps address that particular concern moving forward. And then the other thing that we're focused on is innovation and we've referred to as our digital strategy, which is, we're looking to extend the ability of our people to take on more, but without having to spend more time to do it. So you know, by by focusing on investments in innovating, how
Our work is delivered. We're able to extend the capacity without having to ask people to take on more work. And we think those are the combination of things that put us in a good position even as we might be in a constrained, it labor environment, moving forward.
Got it? That's my only question for today. Thank you. Okay, thanks. Annie.
Group.
Hey, good morning guys. You actually made in your press release that you're focused on being well positioned to deliver even greater growth in 22 than you're going to deliver in 21. Does that statement mean that you have relatively high confidence? In delivering double-digit, Eva Don EPS growth in 22, given the current conditions you see and the pipeline you have or do you need for instance, those u.s. u.s. state and local customers still ramp up their spending. I mean, it's good to see the Senate.
Ask the bill today just a few minutes ago. So I guess that will help if we can get through the house. Yeah, yeah. So I did, I intentionally said, I I, I see are our growth accelerating and again, when I think about girl, think about the overall, you know, profitability of the business and that is obviously as we said in the past a combination of growing, the capacity of the work that we're performing for a customers and at the same time, improving our margins. And and we certainly see that accelerating
As you move into 22 and Beyond where we are today, it's obviously, it's which premature for us to offer any guidance. But I certainly wanted to, you know, to offer that comment about our confidence to continue to grow the bottom line. Well, the business in the business itself is growing, that's helpful, Troy and then is there a theoretical margin ceiling on your America's business? Can you record 20 percent margins in the Americas and then back junior analyst a you said you'd expect in a hundred.
Best wings of tell, when from continuous Improvement initiatives as you've been implementing those initiatives such as workplace of the Future. Would you say so far, you've been able to find more savings than you expected and you're ahead of schedule versus that 180 basis points? Well, I guess it's, I would characterize as 2 components 1 is it certainly is the efficiencies that we've been driving in the business and I would call. So, I would say that we are on schedule with that, but the other
Impact is, you know, the, the actual work that were bidding and how we're delivering it, we're actually within our projects seeing improvements and in the overall profitability of the projects were taking on and how we're actually delivering them. So I'm going to Tribute that our margin Improvement to a combination of the 2. I don't want to, you know, pinpoint something for the Americas. You know, again it's always it's always a balanced equation. Meaning we try and balance work and the
Us around the globe.
So I would see us being on track and having a high degree of confidence of getting to the fifteen percent Target that that we that we set for ourselves and his guard said, you know, we're trying to look beyond that but I think it's a combination of things. It's not necessarily just, you know, driving efficiency in the business if that coupled with the work that we're taking on and, and how we're looking to change how that work is delivered. But Troy just to be clear. I mean, you're getting up into kind of heady territory in your America's margin. There's no
You could still do better theoretically in terms of mix and or utilization or execution. Correct? Yes, yes, absolutely. And it gets back to the point that our Focus was obviously, you know, the core of what we do is is engineering and design. But we're also looking to build our advisory business and our program management business. And so building out those businesses offer the opportunity to
do more work earlier in the process, for the Earth, for your clients and ultimately program management you taking on longer-term, larger pieces of work, which, you know, Ally to be more efficient in terms of your delivery, which also contribute to margin. So I think it's the strategy we've adopted to move into certain markets and certain types of work from where we were. It's the focus on changing how we're delivering that work, as I mentioned through Innovation and digital technology, and then obviously our operational efficiencies
We have to always be focused on, trying to figure out how we deliver work more efficiently every day.
Appreciate it Troy, right? Thanks anyway.
Next question, I know Michael feniger with Bank of America. Thanks for taking my questions, you guys, just grew you, but I think was 15% year-over-year, the guidance implies that the growth slows or deceleration the fourth quarter. I think you mentioned this extra week, impact, your anything else you're seeing today that should really suggest that level of slow down on a year-over-year basis. Is it more conservative them, is there anything for us to read?
Into that fourth quarter. That would indicate, maybe a slower start in in 2022, that that would then pick up through the year. Yeah, so Michael, I guess, first in terms of the, you know, the year that we're in, we're certainly not intending to communicate. That there is a change in the trajectory of our expectations. However, we said this in the past few quarters is that we think it's important that we're prudently conservative in terms of our guys
And so I would say that we're maintaining that same view, we're just going to be prudently conservative which means that we do expect our fourth quarter to the bottom line to grow year over year and we're certainly not intending on signaling anything with respect to 22. You know, when we look forward I think I made the comment that we see it actually accelerating in 22. So without giving guidance, I wanted to give an impression of the the optimism that we have is we have
222.
If they try and I and this apparently a lot of private Equity money and just ma in engineering space right now, you know, you mentioned in your remarks and how you're being Prudence not overpay and the top part of your strategy but does it make you re-evaluate your portfolio like you still view construction management as as quarter portfolio and with some of this aggressive MMA? Are you seeing more aggressive bidding out there on on projects?
Just so, you know, it's always a competitive environment and I think that that is unchanged and remains unchanged the comment that I made about him. And a wasn't wasn't in tend to be focused on anything then our our ability to deploy Capital. We still believe based on the growth opportunity that we see in the business and where we're headed that, you know, we're much better.
Our Capital to acquire our own shares and not to be in the market thinking about large Ma. And for the reasons that, you know, you described is that the multiples for large MMA are, in fact, being driven up because there's competition for those deals but also, you know, the risk of execution in terms of a deal and it's integration is very much different in terms of buying back our stock. So I just wanted to be clear that, you know, we see for us the best
Opportunity for deploying. Our capital is buying back our stock today.
They're enough try. And if I could just squeeze 1 in, you know, our markets, obviously worried about, you know, inflation, Troy and I think you flag that your wind share is going up. But does that also mean, you know how much more selected can you be especially with its infrastructure Bill coming through? Should we expect the mix of your backlog to move? Its a higher margin areas? I think like your water business. For example, you have to price your projects differently as bidding starts.
Not to worry about inflation. Are you pressures? And some of the labor constraints you were discussing earlier? Well, I think the nature of the nature of the industry, the nature of the businesses that we sort of have always did work to include an estimate of of inflation. So, a lot of projects you actually have the ability to price labor inflation, into those projects based on the contract terms that exist.
And we certainly do pay attention to that as we move forward. You know those are all ultimately client decisions in terms of the ultimate cost of a project and so when we go to bid work, we're going to look at what's an appropriate term for those projects for what we're contributing. And if that includes an increase in labor rates will end up getting it that way. So I don't, if I don't view us as, you know, in the medium Tamar even in the the, the short term, you know, having an impact from from labor inflation.
Your next question, line of Steven Fisher with the UBS.
Oh, thanks. Good morning, so the morning. So the construction management backlog inflected just curious how broad-based for the drivers of that inflection. And what does that tell you about the timing of when the construction management revenues could actually turn positive year over year or at least neutralized to a large degree?
Well, we certainly have seen the opportunities in our construction management improve again. I'm going to say modestly and our backlog grooming modestly. The other phenomena is that there are a number of projects that were delayed or deferred. And so we actually see those projects gaining momentum to start or restart.
And so, all of that is, you know, building 2 more optimism around growth and the construction management business. It's a little premature to pinpoint exactly when we see that, but I certainly think as we look forward into 22 and Beyond, we'd have it at expectation that that business would start to grow. So and and in terms of your question about it, you know how broad is that? It is fairly broad based and in fact you know we're seeing the backlog in the pipeline growing markets that might be a little unexpected.
But the markets that were strong. So certainly even when within within New York and Manhattan, we're seeing that growth but it is it is fairly broad based. But again, it's it's in line with where we actually have the footprint of that business, got it and then on cash flow, you have had the improved phasing of cash flow this year and key, maybe just remind us of how much of that was within your control and is that something you can further?
Ants next year. We now at the kind of phasing that we should expect on an ongoing basis. Steven, this is Garth. I'll respond to that question. It was completely in our control and expected because that was a focus of ours. As I said in our prepared comments.
From the onset. And and, you know, our teams have responded to it, just like on our margin Improvement initiative, where our mindset is continuous Improvement. I think all of these key key initiatives is ours, we have the same mindset continuous Improvement. So in 22, we will look for any and all opportunity to continue to better that phasing. But just remember our first half of the year is always going to be burdened with certain 1 time.
Smith's just from a timing standpoint.
Understood. All right. Thanks a lot. Thanks to you. Your next question of mine on Michael dudas, with vertical research. Good morning, gentlemen, Laura
Good morning. Good morning. Good morning.
Troy Lara. When you look at your state local business, you know there's been there was discussion about the first stimulus, the 1.9 billion and the state and local money's flowing through. Can you maybe update us on what you're seeing? There is that starting to get better for you. That give you AB swimming more confidence and the like the next 6 to 9 months. And then when you think about eventual Federal packages, however, it comes through, is it going to be? What would you expect the time?
Black or as you as we start to think about this office will be talk about that when you give out your guy and see if fiscal year end that the lag time and maybe 1 or 2, the area's, you think that could be may be helpful to the, to the back on growth prospects. And in that state local and in that in your federal or state local business, okay? Mike thanks. That was a I'm going to try and get all 4 parts of that question for our motives on week 3. I'm sorry, my bad. Okay, so
First with respect to State and local state and local again remembering that's about 25% over overall business DNS server business. We actually saw in the quarter state and local Revenue. You know, be around flat or maybe down a little bit, which sort of indicates that, you know, there are some of those decisions that are, in fact, are in our pipeline but those decisions are being deferred. So we're seeing the pipeline increase. But we're not seeing those decisions being made. But again, as I
I said, I think that as we move forward, there's more certainty about the the business environment where in, with respect to the pandemic, there's more certainty around state, and local revenues. We've seen the revenues improving substantially and then ultimately, as as there's more certainty around the federal funding that is contributing to those state and local decisions that all leads to an improvement in terms of the amount of awards that will see.
The future with respect to timing. I suspect that that starts now and we'll start to build over the course of 22. So I don't think it's going to be you know a linear ramp up in 22 and Beyond but I certainly think you're going to see it ramp as those decisions start to be made and then those decisions actually turn into you know turn into projects.
And you talked about ESG efforts, you know, office internally but also for your clients and 70% touching on in your, in your, you know, somewhat unge, s you focused, maybe you share, you know what types are? What are the things you're seeing from the private sector? And is it? You know, a certainly is it allowing for more advisory or project management work that comes in there is it's just really the early stage that could lead to much more chunky or
Thoughtful backlog opportunities as you know this emerges over the next couple of years. Sure Mike. I'm going to let Larry answer that question.
Our advisory story. And just if we look at this last quarter, there have been dozens and dozens of significant winds at all levels of different different public and private groups of clients. And if we look at the Americans, for example, it was growth and awards from some of our, more significant state-based, d-o-t client that you referenced earlier. It was Transit clients. And then it was also, private sector clients or a lot of and it ranges from climate adaptation strategies.
Build vulnerability assessment of all of their assets due to extreme weather events, resiliency studies. And and obviously electrification. There's a lot happening in that space and most of our big Transportation clients have a very ambitious decarbonisation agenda, and then there's all the building retrofitting work both in the US and in key markets, like the UK. So it's definitely a growing element of our advisory service offering, which as you noted is a big growth in
Chief process is the program management business as well.
SEC a true. Thank you. Lord. I was just going to your question. Was it just the exposure to the infrastructure bill? Yeah, sure. And I, you know, I think it goes without saying but I'm going to say it anyway. Is that, you know, I said in the prepared comments that we are exposed almost every dollar in that proposed infrastructure bill, but the places that we see, they just these, you know, large opportunities are clearly in surface, transportation and Transit. This is probably the largest rail investment that
Certainly see in our in our careers, Aviation a significant investment water including you know managing through pfas and the cleanup of certain other emerging contaminants. So when we look at that, you know, we're just we're just incredibly well exposed to that and then there's some new things that are in there as well. The money that's going to be spent on the Broadband build out across the country. You know, we're certainly not going to be building it out, but in terms of all the work that leads up to the the permitting and
Then helping manage to those projects. We see that as large opportunity as well.
Excellent. Thank you Troy. Okay. As a reminder, if you have a question, please press star. Then 1 on your touch-tone phone, if you wish to be removed from the queue, please press the pound sign or the hash key. Your next question, line of atoms, all my ER with Thomas Davis. Hey, thanks guys. I want to take another shot at the construction management backlog growth. Is it a different? Is it different kinds of projects driving that I have to think that, you know, nuscale
New high-rise office would still be under pressure, some pressure. Well, you know, it's a good it is it's a good question, right? Because you think it would be a little counterintuitive, but but actually in the markets where we have a pretty significant footprint,
We're actually seen people taking a long-term view in terms of those infrastructure in terms of those, those, those high-rise Investments. So it certainly isn't, it certainly not as in the condo Market, but it certainly is in the office and mixed-use development. And again, so we're seeing it in the places that you, you know, you might question. But I think again, I think that folks are taking a longer term view that those are, you know, Investments that will have returns over 30 or 4 year periods.
and then we're also looking at certain, you know, certain
Markets where there is a significant amount of growth in certain cities and then beyond that. In that business. You know, there is, I'm going to say their infrastructure type Investments being made that our construction management business participates in, and that's in, you know, in aviation Healthcare and and certainly in wind power.
Okay and then and then on the oh I want to ask the inflation question again from the standpoint of at the very good. You guys are at the very front end, right? Of some curious how clients are reacting to hire materials prices, you know, shortage of The Craft labor, think you know, how are they? Are they pulling back on their design aspects? Are they still pushing forward with the design? But then maybe not pulling the trigger as fast on.
You know, pushing go and construction. Well, if I look at our pipeline, our pipeline is up in design and in construction management. So you know any of the unfair to pinpoint an individual decision but when we look broadly across the portfolio, even with the increase in prices of materials and and labor, we still see the list of opportunities improving.
Great, thanks. Thank you.
Again, if you like to ask a question, please press star. Then the number 1 on your telephone keypad.
And there are no questions at this time, I'll turn the call back over to CEO, Troy read for closing remarks. Thank you again for the contributions to another strong quarter. We're proud of, we're delivering on our financial and strategic commitments. And more importantly, we're delivering on our vision for, for delivering, a better world. We feel like we're outgrowing the industry organically.
Continue to expand our margins and we see that manifest himself in our continued of it, delivery of strong earnings and cash flow. Again, I thank everyone for your time today and we'll talk to you soon. Thank you. He concludes today's conference call.