Q4 2021 AECOM Earnings Call
We have to substantially grow our program management business and we are delivering this.
This is especially apparent in the middle East, where we had several recent successes in high priority in larger programs, where a combination of technical leadership.
Global thinking and program management expertise were instrumental in our success.
<unk> significantly expanded program management and design roles and transformational projects in Saudi Arabia, such as for our Lula City and a large transportation projects in Qatar.
For more than 100 employees have joined AECOM from the incumbent to support this work.
Second we are demonstrating our leadership on ESG, our investment at the natural capital Laboratory in the U K is a great example.
We established this project in 2019 to study the environmental change and biodiversity impact with precision by leveraging drones artificial intelligence Gis data and thermal imaging.
The ability to more exactly measure the impacts of de Carbonization is a critical element for the global agenda to drive de carbonization and carbon sequestration.
Our investment in our work at the NCL underscores how E com and our professionals are leading in the development of the standards and method to measure de carbonization, which will be especially important for creating reliable markets for sustainability investments.
Let's turn to the next slide.
I mentioned earlier that our strong performance in fiscal 2021 has created the opportunity to accelerate investments and expand our advantages.
We break these investments into three categories people clients and digital.
Beginning with our people.
We had a knowledge base business and our diverse professionals serve as our greatest advantage. Therefore, it is critical that we have the right culture and programs in place to attract and retain the best talent in the industry.
To do this we've implemented a flexible work model designed to facilitate optimal work life balance. In addition, we've enhanced our benefit programs and increased our investment in technical and professional development.
Importantly, our people are winning and delivering the most challenging and iconic projects.
All of this culminated in a culture of high engagement high satisfaction and low attrition.
Turning to how we deliver for clients, we are leading with our higher margin program management and advisory capabilities and investing across our key account programs to ensure our clients are benefiting from our best expertise globally. We're also developing technology to automate and pre populate certain elements of our designs, which capitalizes.
On our vast expertise accelerates the design process and extend the capacity of our workforce.
Finally today, we unveiled digital E com, which brings together all of our innovative digital capabilities after more than a year of focused investment in the launch of many digital solutions. We're now formally rolling out our digital products.
A great example of this is plan engage.
Our digital platform that Reinvents, the public engagement process for an infrastructure project by creating greater certainty on cost time and stakeholder management.
Successful community engagement is a critical step in our project, but this process is rarely digitized client engage simplifies this process by integrating all of the key elements of a project into a digital tool, which allows our clients to capture information to make more informed decisions and advanced projects more quickly. The solution is years ahead of the competition by our estimation.
And we see plan engage becoming the industry standard.
With the passage of the infrastructure Act in the U S. This tool will be even more valuable.
Across these focus areas one themis constant our investment will expand our advantage as demand grows and labor constraints challenge similar some in our industry.
Please turn to the next slide.
Looking to fiscal 2022 and beyond the spotlight on infrastructure has never been brighter.
In the U S. The one two trillion dollars of infrastructure and jobs Act marks a generational investment in Americas infrastructure there.
As Bill provides much needed long term funding uncertainty across our strongest end markets such as transit monetization electrification environmental remediation and climate resilience.
Importantly, we are positioned to benefit from nearly every line item increase our addressable market and our most profitable business by double digits over the coming years.
In addition to the strength in federal funding environment, all of our state and local clients are an equally strong footing today state D. O T budgets are significantly above prior projections and the physical outlooks are stronger.
Our public sector pipeline the U S is up double digits and with this trial.
Anticipate the pace of decisions will accelerate as well.
Our international markets are equally strong conditions in our largest markets.
Both across all major international market.
It's in the fourth quarter.
In addition, we had strong backlog growth in each of our largest geographies I'm, especially pleased to see that our strategy with a focus on program management contract.
Middle East and in key transportation.
And wins in the UK.
We're regaining market share has been a key priority.
As the number one ranked transportation.
<unk> and environmental engineering firm as well as the number two ranked water design firm.
We've initiated.
Adjusted EBITDA and adjusted EPS guidance of between $800 million.
And between.
$3 20, and $3 40.
This reflects growth at the respective midpoint.
Underpinning this growth is an expectation for another year of accelerated.
And at least 30 basis point increase in our margins.
2%.
Our guidance.
We are making in our people business develops.
And client delivery and digital capabilities.
I also want to comment on the 2024.
In February.
Based on our strong performance to date and the returns we expect on our investments we are raising our long term adjusted EPS guidance to at least $4 75.
Fiscal 2024.
This would represent a more than doubling of our fiscal 2020 earnings and a nearly 20% CAGR from 2021 to 2024.
With that I'll turn the call over to Laura.
Thanks Troy.
I am pleased with how well our teams have responded to our new strategy and then many accomplishments in fiscal 2021 in particular I would like to highlight our success on some of our larger can proceed a global approach technical leadership program management capability advisory expertise and multiyear investment are bearing.
Great.
A great example of this is in the middle East totally prioritize.
We have gained market share with links and legacy these including neon and Lula in Saudi Arabia K to these expenses does the integration of global capabilities, including expertise from every region and market sector.
Our culture of collaboration has truly distinguished us from competitive, particularly at that client.
Multi decade investment program that require more holistic thinking.
Another Great example is in the U S with.
We were recently selected for a large program for a client who selected US based on our leadership capability in many vehicles, including pizza even at pace that I think are contained wasn't the main criteria in the disease.
We are continuing to prioritize our time and capital on the best opportunities, which has been instrumental in our high win rate over the past year and our confidence in continued market share gain.
Looking ahead, our clients continue to prioritize investments in ESG, and we are well positioned to capitalize on this trend.
At the current 2000 and seek summit earlier. This month. This commitment was front and center as the most prominent public and private sector voices slightly easy on the challenge and the opportunity.
Demonstrating how we are leading in E&C alongside our clients, we published a global E&P report last week, which includes discloses aligns with the FASB and Tcf day frameworks.
Paul is an important step in our ESG journey and underscores our commitment to regularly communicating our progress on our sustainable legacy Strat team.
Troy spoke about our focus on ensuring we attract and retain the industry's best and brightest and I am pleased to report we are operating from a strong position to.
To that point, we conducted a global employee.
<unk> strong levels of engagement, including the vast majority in recommending a com is a great place to work.
High employee engagement is also leading to the highest client satisfaction.
In fiscal 2021.
With that momentum we are in an enviable position from which to deliver another strong year in fiscal 2022 with that I will now turn the call over to guy to discuss our financial performance.
And outlook in greater detail.
Thanks, Laura.
Our fourth quarter and full year results serve as clear evidence of the strength of our business and the benefits of our focused strategy we.
We delivered accelerating MSR growth the highest margins in our company's history another year.
Our growth more than 30%.
And adjusted EPS growth and a seventh consecutive year of free cash flow at or.
Opportunities to invest in organic growth, while also bolstering our confidence in delivering on our long term organic growth.
All of this was achieved while making critical.
Investments in people teams.
We will sustain our advantages in fiscal 2022 and beyond.
Please turn to the next slide.
In the Americas, MSR increased by 7% in the fourth quarter.
For including growth in both design and construction management businesses.
Contracted backlog increased by 21% to set a new record.
This included growth in the design business.
Any large construction management projects that moved into contracted backlog and firmed up our outlook for the year.
I should note that our awarded backlog was reduced by $1 3 billion as a result of this client only advancing the first phase of this project at this time.
However, the economic impact of the shift is not material to our earnings outlook business is higher than it ever has been in many years.
The fourth quarter adjusted.
Continue to expand our lead on the industry, while investing in people clients and innovation.
I also want to emphasize that our adjusted EPS guidance only incorporates the benefit of our share repurchases completed to date, though we expect to continue to buy back stock in fiscal <unk>.
Post 2022, as part of our capital allocation program.
Also incorporated into our guidance is 26% effective tax rate.
We expect and are operating mix and structure.
Finally, I should note that we expect our EBITDA track with our phasing in fiscal 2021.
Our tax rate may be lower in the first quarter and as a result, our EPS spacing, maybe more first half weighted than our seasonal pattern.
With our outperformance in fiscal 2021, our expectation for strong growth again in fiscal 2022, and the successful launch of our digital platform. We're also increasing our long term financial targets for fiscal 2024.
This includes our expectation.
Patients, who now achieve adjusted EPS of at least $4 75.
In fiscal 2024, which is 10% above our prior projection and is nearly 20% compounded annual growth rate from 2021 through 2024.
With that operator, we are ready for questions.
Thank you very much if you have a question. Please register this now by pressing star followed by one on your telephone keypad.
Jeremy to your question from Nicky. Please can you say it by pressing star and then K when preparing to ask a question. Please ensure that your device is unmated lately.
Our first question today comes from Sean Eastman from Keybanc, Sean Your line is open.
Hi, Tim Great update here.
I just wanted to start on on the organic MSR guidance for next year could.
Could you give us a flavor of how that 6% looks maybe by design versus construction management international versus domestic.
If we're at 6% for fiscal 'twenty two.
The updated CAGR built into the.
Revised fiscal 'twenty four targets.
Sean It's Troy. Thank you for the question.
So first of all when we look forward, we actually see that organic growth being relatively even across all of our businesses.
When we think about our construction management in our U S design business part of what we've been working to accomplish is to have them work together. So when we deliver a project and construction management, there's a material or significant design element to it but again, we look at the market backdrop and it is increasingly positive.
And the business momentum is increasingly positive so we see that across the Americas.
We also see something similar internationally again, we see the opportunities across the entire portfolio of our business improving over the course of this next year and again, it's been it's driven by the momentum that we're seeing in the business, but also by improved increasingly positive markets.
Yes.
Infrastructure here in the U S.
In the Iga, a and then.
Last thing.
We actually see that are being accelerated by private ESG ambition.
So we think about it as a catalyst for.
Really a large long term.
Sure.
Just thinking about this as a global infrastructure investment Renaissance.
Right.
And that guide for 'twenty, two based on the market.
Momentum in the business and then in terms of the longer term, what's built in the model. So I'll, let Gary answer that question.
Sean This is Doug.
Then for our long term guidance as well.
After a strong 2021.
2022 in regards to womens.
Well what it does not include.
Any material impact in fiscal year 'twenty two for the jobs Act.
And we're very confident in our projections were 24 long term target of 24.
Jobs Act provides a lot of certainty to that comp confidence now, but we really havent fully baked it in either as we get more clarity it's possible there'll be more incremental.
Okay Super helpful.
I guess the growth.
Tailwind in the U S are pretty obvious around the jobs act, but in the prepared remarks.
Middle East it sounds like you're unseeded an incumbent there talked about some strength in the U K, maybe you could just expand.
On the <unk>.
Sure element.
In the international business I, just want to make sure we're getting the right takeaway.
Good way there.
Sure. So again I don't think that our viewpoint on gaining market share as isolate its international.
Opportunities across the business and program management and in again.
Larger programs.
You've got candidates, making very significant investments in infrastructure, Australia is taking those investments the U K is making.
But then layer on top of that.
A lot of our private.
Client customers that are also making investments in their own infrastructure and they're again, they're driven around.
<unk> their environment.
That they've set out so.
We again.
We see this machine is broadly across our entire portfolio.
Again, the accelerant to that for US has been how we're delivering work for our clients.
Tests that we have around the globe to those particular clients and opportunities.
The focus that we have on providing that.
That front end advice in this program management services when you think about it this way.
If there is so much capex being invested in projects over the next let's say between five and eight years because of the accelerated investments in infrastructure.
Our clients need help to manage that capex. So it's not just doing the design work and doing the construction work, but actually being there to help them, which are far larger than they've had in the past years and for us investing in building our program management business is our way to participate in that so we view this as we're participating.
Peyton and those projects sooner.
In a more meaningful way in <unk>.
Frankly longer by having our program management business.
Okay. So I'll sneak one last one Enzo 30, 30 basis points of margin expansion for fiscal 'twenty.
Me too Youre also saying investments in BD HR digital are accelerating.
What would you say the underlying expansion is there if we kind of neutralize those investments and what kind of tail should we expect on the level of investment in the business that Youre highlight Sean Didnt Garner again I'll take that question. So.
Keep in mind, we're coming off in fiscal year, 'twenty, one where expectations were at 13, 2% and we over delivered on those simply put even when you look at 'twenty two and beyond we're ahead of schedule in certain regards way ahead of schedule.
Nine months ago, when we provided our long term guidance of 15%.
Being achievable that being a ceiling today, where we fit of what we've accomplished.
15% is a floor for us.
17%.
Which was ambitious we now have building blocks that are taking place as part of the investments, we're making into the business that we made in 'twenty, one and will continue into 'twenty two.
And what's really providing the tailwind to the second half of your question.
Simplification of our strategy, where we're focused on our key geographies, where we dominate in the business lines that we operate in those geographies and is taking with Troy just alluded to are thinking that global strategy 50000, the brightest professionals in this industry, taking their ideas to our clients and delivering value.
Two of them, which you are seeing in our capture rates highest ever we've experienced.
In our history and this is all before the infrastructure Renaissance Troy spoke to.
Very helpful. Thanks, So much John I will turn it over.
Thank you Sean for your question. Our next question comes from Andy Kaplowitz Citigroup, Inc.
Please proceed.
Good morning, everyone.
Good morning.
So Troy.
Maybe you can give us a little more color into what youre seeing in core Americas design. You mentioned your pipeline of opportunities is still up double digits Americas contracted backlog up 20%, 21%. Although a lot of that is construction that management. So did you see any acceleration for instance from some of your state and local customers, who I think last quarter seem to still be relatively.
Be careful about moving forward with contracts and if not when do you think they could start to move forward, especially considering the U S infrastructure Bill signed today.
Yes, Andy.
So we did see we did see an improvement in the overall Americas business in terms of the client decision making.
But more importantly, we saw a.
Our willingness and some very clear a clear agenda is to put some long term programs in place and a lot of this was being done.
Without the support of the infrastructure the federal infrastructure Bill, but now again, we're where we're working towards the assumption that it will be signed today at three P M and when that happens it certainly provides us with the state and local government level.
Again, I'll just I'll just use the example of New York and New Jersey.
And in transportation agencies in New York, New Jersey area to invest over the next five years almost 200 billion.
Billion.
In capital programs and that was before.
The passage of the J. Obviously this provides more support for that.
We saw an acceleration in the pipeline. So first of all what was.
So in terms of the pipeline of opportunities and then we see that as being accelerated expanded beyond what we've already seen.
And then into 2023.
And Andy if I can.
Okay. Okay.
Tyler I'm, sorry, Andy I'm, just going to expand on all of our capability being bullish.
And that portfolio.
All lines of long term planning.
Thanks for a lot of these infrastructure agencies.
<unk> pipeline of design build.
And a lot of near term opportunities.
The essential work.
We are very strongly positioned and cloud side.
I think we're in a great thing.
That's all helpful color and would you.
You are forecasting you know MSR to be up 6% in 'twenty, two I think it's up underlying.
And six 5% in Q4, I don't think that comps get much more difficult anything else going on.
To think about.
Because it seems like you know you could even have an acceleration of Q4 levels.
Yes.
Again, I think as we tried to point is that in our prepared comments that we increased our longer term view based on the performance of the business to date and also what we saw is the momentum being created in the business.
We again the success that our people have been having with their clients and so the investments that we've made.
And so we really haven't we really haven't sorted out exactly what the eye JA will mean for our business. We're in the process of doing that now we can provide upside to our results.
Maybe investment industries and labor.
We try and at least be some.
Somewhat conservative in our views of the business.
We just don't want to be out kind of.
Making some statements where we don't think we can absolutely.
Thanks for that Troy and just a quick one for Gar like just in terms of the free cash flow guide obviously down.
That just extra capex and the investments youre, making anything else to think about in terms of conversion 22 versus 21.
Got it.
It's exactly what you stated.
We are making.
And then some of the business.
Again to support the growth, we see coming and also expansion of.
Our margins no longer like I said, 15%, but really putting the building blocks in pesos for 17%. So it's investing in our digital.
Cash flow of the business remained strong and we've always said that it will be in the mid <unk> and Thats what.
Yes.
Free cash flow conversion lowered because of capex.
I appreciate all the color.
Yeah.
Our next question comes from Andy Wittmann from Baird. Andy. Please go ahead.
Thanks, Greg I wanted to just keep going on the free cash flow.
Generic or a little bit so I mean, it's I guess for your Capex is up like $40 million year over year.
Should we think of that full delta is unusual it sounds like there's a little bit of.
<unk> Capex this year and if you could also just refresh us I mean, there's some other headwinds I guess that are identifiable and your free cash flow guidance for this year.
Could you remind us the key.
Cares Act headwind for you I think you have to pay back half of that here in the fiscal first quarter.
Okay.
Like you have got $20 million to $30 million of restructuring costs are those cash.
For noncash I, just wanted to get a better sense of what the underlying free cash flow are and maybe if you wanted to comment was there anything.
Are there any.
Unusual collections to the positive in your guidance for this year that we should be aware of as well.
Well sorry, there is a lot of pieces in there, but I think that all captured if you address those things.
No problem.
Please respond to all of them. Please let me know.
<unk>.
So in regards to the Capex of $40 million. It is proper to think about it as a temporary investment we're making into the business for all the reasons Troy and I stated earlier there is nothing unusual related to the cares Act.
Or restructuring we've had restructuring cash flow in the current year, what we're expecting the 20% to $30 million of restructuring, which by the way it relates to duplicative cost we will incur in predominantly in our real estate and <unk>.
Infrastructure as we progress to a flexible workplace of the future.
Those are going to be predominantly cash in the year, but we incurred that in 2021 as well and there is we have tens of thousands of projects going on at a given point in time, so it's hard to be that precise.
Fair enough.
Right.
Just checking with.
I guess, the staffing of the organization that utilization of the organization and the capacity of.
Company to handle this.
More work could you just talk about how much more flexibility your people that you're correct.
Currently have have to do that work and what the recruiting environment looks like and what that means for your overall kind of compensation labor inflation characteristics I think.
Can you kind of understand where we're headed here.
Yes that was a very big broad question. So I'll do the same thing I'll be like all hopefully I'll hit them, all and if I don't remind me.
So just at a high at a high level absolutely.
Unlike we're not unlike anyone else, but certainly as constraints in terms of our ability to bring people on in the industry and us as we see the business growing.
There's no question that that becomes even more important retaining and attracting very talented people to the organization.
In terms of this year.
So far this year, we've added about 1000 people to.
To the organization.
As we move forward we're focused on.
I'm, creating a great place for people to have a career. So the things that we're doing flexible workplace is an important element of that but it's actually traded in an environment, where people are comfortable that they want to be and it's a great places to be.
We're looking at investing in their technical and their professional development. We will also evaluate things like benefits and compensation and making sure that we're certainly at the market for that.
<unk> all of that does again as you said can create some labor inflation, but the nature of our business is that.
A lot of those costs and our contracts are passed along to our customers.
You have time and materials or cost plus contracts as always escalations built into that and then as we move forward and bid projects those costs get built into our.
Into our rates and they get passed on to our customers.
More importantly.
There is something that we're doing which we think is the more important element of this which is through our investments in how people are delivery network.
We refer to this as element of our digital investments with digital transformation.
You certainly can't ask people to work harder than they are.
So what we're doing is we're looking to extend people's capacity.
By making these investments in digital and extending what they can what they were able to accomplish with their workday and frankly at the same time it creates a better work environment creates.
The environment is more fun and more challenging in terms of your career. So we believe that's a really important element of addressing that market concern and a concern that we have and then the last thing is.
We're continuing to build centers of excellence so that we can take this.
Extraordinary capability that we have globally and asked people to participate from around the globe on projects by being members are participating in these centers have hit something thats not going to impact our margins because our industry passes along to customers and we think we've done some things that position us very well so that we can manage through what would be a.
A great problem to have but it's not something that our industry has been.
Had to deal with for a decade.
Fair enough. Thank you for the responses have a good day.
Alright.
Our next question comes from Steven Fisher from UBS, Steven. Please go ahead.
Thanks, Good afternoon, and good morning, just wanted to come back again to the digital investments that you're making.
Can you give us some sense of.
Are they all through Capex or are there some that's going through the margin line items.
And just some examples of I mean, it sounds like it's it but.
Maybe just some examples of what kind of investments, you're making and then just how confident we are that.
There'll be a less visible drag after fiscal 'twenty two.
Sure So Steve.
Going to let Gary answer the margin question, but first just let me answer the second half of that question, which is we don't see this being a drag on the business are margins, we actually see this as an important path for us again.
Again, moving beyond the 15% target into the 17% range, how the value that we deliver to customers and how we deliver it is what's improving our margins.
<unk> costs and so there certainly is some money that we're investing in the business to get there and we will continue to invest that but we believe that that will be an ongoing journey. It's not a one time investment that's part of how we're going to continue to invest to change the way we deliver work.
The other important point here is that we're not announcing something new.
We've actually been working on this and investing in this for about 18 months. What we're doing is we're starting to unveil the things that we're already having success with.
And so I made reference to something that we called plant engage in my comments.
And plan engaged as a digital tool that we've been working with end customers.
Throughout the globe for this past year and they've been using as the tool to improve their community engagement and to exceed up their environmental permitting process, especially during COVID-19.
And so.
And this is something we think is becomes when it can become even more valuable and we believe that this plan engage.
This plan engage investment and this product will actually become the industry platform for how our customers across the world.
Large agencies will use it to engage with their communities to get their projects approved it really is a unique product I think as I said, we're not unveiling. It we've already been have we've already had success with it and with large transportation transit agencies around the world.
So those are the that's an example of the things that we're talking about.
Yes.
Steven specific to Opex versus Capex it goes through bold.
Initially when we are developing that will go to capex and once it's being monetized in the marketplace or if it's internally focused to Troy Troy alluded to to expand the efficiency of our workforce at that kind of go through Opex.
Okay. That's very helpful. And then just related to the stimulus given that.
And she being signed this afternoon.
Trigger any particular type of action inside the company is this sort of like a or is it going to be more of a wait and see if you have any now internal stimulus task force to see how youre going to approach this and what can be prepared for that.
Just curious.
What today is.
Activities actually triggers the company if anything.
Well I guess it doesn't doesn't necessarily trigger any new activity of the company because.
We've obviously had line of sight to us for a long period of time and that activity has been.
Talking to our clients to figure out how it's going to impact them.
And helping them understand how they can take advantage of it so that that dialogue and that finding its been going on for a while obviously as we've been getting closer to something getting signed that activity has been accelerating.
So once it is signed it's just a continuing ongoing discussion with our clients.
Helping them think through their plans.
And think through how they are going to take advantage of this but more importantly, as they take advantage of it.
How are they going to do it.
I think again, you've got you've got clients or agencies, whose capex could be increasing by 10 times or more than that and so that's why we say having a program management team to help them through that is so important and that's the investment we've been making in so we're not doing anything we're not doing anything all of a sudden.
As of this afternoon, we've been we've been thinking about this more with our clients over a long period of time and given the clarity inspected.
With respect to choice alien comments at night difference to the sort of one income approach that we're applying to all of the infrastructure programs around the world and we see a similar very significant pipeline of opportunity does that very strong infrastructure outlook and our program management capabilities that were growing our front ended by.
They are the critical areas of support that all of the key infrastructure agencies are looking for and they were very strongly positioned to address that.
Scale going forward.
Terrific. Thank you very much.
Thanks, Steve.
Sure.
Our next question comes from Michael <unk> from Bank of America. Michael. Please go ahead.
Yes, Hey, guys. Thanks for taking my questions.
Seeing a lot of M&A right now in the engineering space, including private equity just how are you balancing.
The view to reinvest in the business at the at the stage first acquisition with where maybe multiples are today.
It's a good question Mike.
They're obviously again there are two points of view and as we have a very clear stated point of view is that we believe.
Equally that invest in organic growth.
And the street capital to our shareholders.
That's helpful.
Thank you.
So that again our investment in R&D.
Invest in inorganic growth and at the same time, returning capital to shareholders is our stated point of view and.
And there are all kinds of ways to look at it but we're looking at the long term K CAGR of cash earnings.
And if you look at a long term case CAGR of cash earnings.
We believe as we said we think that we're in the 20% range.
If you do some analysis around the alternatives, which is through M&A, you'll find that when you look at how capital is deployed that long term CAGR is perhaps lower than that.
Now that's also comes with the ability to actually integrate businesses and more importantly, integrate cultures, which can be a difficult thing to do and takes years to find out whether they are successful. So we just have our point of view that we believe now that we have the opportunity to invest in our business.
And have turned it into the highest performing business in the industry.
With the highest margins and we believe continuing to do that produces the best result for our investors, which is the highest long term.
Cash earnings CAGR for cash earnings per share CAGR.
Thanks, Troy and I guess just to follow up with that your I think one times levered, but if we assume the midpoint of your EBITDA growth and another good year free cash flow.
On your leverage would move down considerably.
As status quo. So what is the right net leverage range for us to think about this business with the stability and the runway we see over the next year is there any view of instituting a dividend given the stability of this business.
Just curious of how to think about that leverage range as well as we're moving into this growth period.
Yes, So I guess first I'll, just I'll simply say that that's an ongoing dialogue we have at the board how we allocate capital is an important question that we have continued to evaluate an answer and today, we're very clear on what that answer is but you're right.
As our business grows our net leverage will decline, meaning that we certainly have more capacity.
We think that the net leverage of one is the right place to be for our business. If we look at it.
We look at the again some different elements of this when we look at the nature of the business long term backlog that we have the certainty we have around the business.
<unk>.
The cost of capital that comes along with our current leverage ratio our leverage position and we just think we're in a very good spot to be which is one times net leverage and you are right as we move forward, we will create an even larger opportunity to invest in what you've described that another question about dividends. That's just an ongoing dialogue we have with our board.
What is the right way to think about allocating capital, but today, we are very clear on what that answer is.
Sure.
Our next question comes from Jamie Cook from Credit Suisse. Jamie Your line is open.
Hi, good morning.
Nice quarter.
I guess Jamie from pricing.
You guys have made good progress on reducing the free cash flow. So I'm, just wondering if theres any more opportunity.
Our <unk> <unk>.
2022, and then I guess just my second question for now.
The timeline to get there we had a schedule where includes shipping.
Jamie This is <unk> I'll take both of them to cash.
We had a <unk>.
Strong conversion of 80 plus percent in <unk>.
2021, and the quality.
I'll leave you to cash flow was very strong phasing was was good but our focus.
Okay.
And that's what we're going to be focused.
To make sure that our phasing it.
As optimal and we are.
Extracting the maximum amount of conversion as possible.
Okay.
In regards to the margins for international.
As I said in my opening comments, we had 80 basis points growth in 2021, and we expect that growth in margin to continue international as we march towards double digit.
Double digit margins in international business, it's all being supported by strong market dynamics.
Fantastic capture rates opportunities that we're able to to go get in the market and executing upon them profitably. So we see no hindrance to our ambitions in international margins.
Thank you.
Okay.
Please go ahead.
Okay.
Good morning, gentlemen.
Hi, Mike.
Two thoughts first.
Maybe you can elaborate a little bit more on the opportunity.
These Airbus with focused on transportation infrastructure, but on your water business I would think that there's been some funding, but some opportunities certainly here and abroad that could be Bruce let's maybe just some thoughts on that and then the follow up with that you mentioned in your prepared remarks, so COPD 'twenty six.
And the excitement there or thereabouts.
How's the private and public sector balancing.
Im sure Theres a lot of work prior to this call.
But.
Is that some accelerated that youll see that and see some visibility in some of the global design business and the opportunities for energy transition advice and efforts certainly absolutely.
Foreign project construction is quite quite a nice award last quarter that going forward in your plan and next to the segments both coming from us.
Okay, Yeah, Mike Mike did try I think the first one and then I'll share the second one with with Laura So first of all you're right.
There is a substantial opportunity the jobs Act.
There are some large line items.
Including.
$15 billion King water infrastructure projects.
There is.
$50 billion that is focused on DFAST and eliminating emerging contaminants.
And then there's one in water quality.
Quality of the statements.
Construction Bill is just so so.
Significant that we focus on the transportation element, but youre right. There is a lot of money that's going into aviation a significant amount of money going into water.
And certainly in terms of environmental remediation and contaminants, which will participate in.
And then there are other line items included in there there's $21 billion being dedicated to just environment environmental remediation work for Superfund sites. So they are just are the all these line items that are scanned.
We believe that we participate in a meaningful way in almost every single line item in that bill.
And I'll, let <unk> answer your question, yes sure.
And thanks for the question, it's very timely <unk> in April launched a sustainable legacy strategy, just Las Vegas, Troy simply relief.
<unk> got some sustainability report.
Very timely for us and such a great platform for us to showcase our tremendous ANC in case, the ability to hit that for a number of Ian but I feel like we're really bringing all that together very strongly and it's great to see and I have such a strong presence in shelling at comp.
And since <unk> founding nations coming together to talk about the serious challenges of climate change and and to talk about the sort of financial commitments that are going to be required to achieve that.
Yes. It was just a fantastic opportunity to shape the case for all of that and to talk to many of our partners and clients.
About how we take that forward.
It's a core element of our ESG strategy going forward and I think we are in the strongest position in the industry.
To make that one of our key strategies.
Strategies going forward.
And then just add two quick points to what Larry said, which is.
What's been happening in the last six months has been a little unusual in that we have seen private financial institutions banks and insurance companies and other providers of private capital.
Change their thinking about where they're going to allocate it towards ESG related projects projects.
That provide return environmentally and socially and away from other projects, which again, we think is important because that's going into different types of infrastructures, we're positioned to support.
And the other thing that is kind of on a comp that for US we think is fantastic.
We participate in determining how in fact de carbonization of sequestration is going to be measured.
Because today the standards for measurement and how you go about measuring that are still as yet undetermined until that happens and there's certainty around it it makes it very difficult to actually have markets.
Right, where you're actually selling carbon credits and so we've been doing a lot of investment in that as we mentioned our natural capital project during the call.
We're also working again through a group.
That is setting the terms of the standardized in terms of actually measuring so that we can support decarbonization markets certainly think that that provides us a great leadership opportunity.
Excellent Thanks, Mike Thanks, Patrick.
Thank you Mike.
We currently have no further questions I will now hand back to CEO Troy Rod for any closing remarks.
And again, thank you for your time today and participating the call.
I just want to remind everybody we want to get a big thank you to our people for doing such a fantastic job.
In delivering this past year in creating momentum in the business. We have I hope you walked away with understanding that there are tremendous opportunities in front of us that are long term that we haven't seen the long period of time.
And we look forward to talking to you and catching up on our next earnings call. Thank you.
Thank you everyone for joining today. This now concludes our conference call. Please disconnect your lines.
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