Q3 2022 AECOM Earnings Call
Small successes in priorities and golf Kapoor, 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 Rudd.
Thank you will and thank you all for joining us today.
I want to begin by acknowledging the unwavering commitment of our professionals to our clients and to our shared purpose of delivering a better world.
We take great pride in what we do to that point, we are proud to have once again been ranked as the number one company in our industry on Fortune's world's most admired company list.
And have recently been recognized as one of the world's most ethical companies by Ethisphere.
I'm also pleased to report that this month engineering news record affirmed our ranking as the number one environmental engineering services firm, placing us well ahead of our professional services peers.
Our teams are the best in the industry.
A great example of this is the nomination of shale and bad by President Biden to lead the Federal Highway administration.
<unk> is a great industry talent and reflects the caliber professionals that reside at <unk> com.
The proof point of how the strength of our professionals translates to value creation is in our EPS growth. We grew adjusted EPS, 31% last year and 28% year to date through the third quarter.
Turning to the business five key themes underpinned our confidence.
First we are consistently delivering on our financial and strategic priorities. These include accelerating organic MSR and backlog growth gaining market share expanding margins and delivering strong per share earnings and free cash flow growth I am proud of the discipline. Our leaders have exhibited in balancing organic growth with margin expansion in <unk>.
<unk> growth, while we continue to invest in the business. When you look around the industry you can see that these characteristics make us quite distinct.
Second our thinking that globally strategy has transformed how we operate and how we deliver by prioritizing collaboration and innovation and emphasizing return on time and on capital.
This has translated into a record high win rate design backlog and pipeline of opportunities.
Third our investments in digital advisory and program management have expanded our addressable market deepened decline engagement and enhance the value of our technical capabilities. As a result, we are supporting clients more broadly across the lifecycle of their investments and enhancing value for both us and our clients.
Fourth the markets in which we operate remains strong despite recessionary pressures a global infrastructure investment Renaissance <unk>.
Investments in environment sustainability, and resilience and adaptation to a post COVID-19 new normal are secular mega trends that will continue to create growth opportunities for several years to come.
Finally, our balance sheet is in great shape. This is a competitive advantage that creates certainty and allows us to deploy capital to drive value creation.
Please turn to the next slide and a review of our financial performance.
Organic MSR growth accelerated to 6% and was driven by a strong backlog accelerating funding in our markets and strong execution.
I should note that our growth does not yet reflect any material impact from <unk> funding, which I will discuss shortly.
Importantly, we are driving increased profitability as revenue growth accelerates. Our adjusted operating margin was 14, 6% an increase of 50 basis points over the prior year, we are investing at a high rate to expand our capabilities and prepare for increased funding our margins remained the highest amongst our peers, which in turn.
<unk> the value of revenue growth.
Adjusted EBITDA and adjusted EPS increased by 7% and 18% which were both a little ahead of our expectations.
Free cash flow was also strong at $183 million on a year to date basis, our free cash flow increased by 15% and on a per share basis increased by more than 20%. In addition to the investments in organic growth, we've returned more than $400 million to shareholders. So far this year.
Over the past four quarters, we have returned cash equivalent to 6% of our market capitalization.
As our results demonstrate we have created competitive advantages that are differentiating our performance. Despite an unexpected market headwind from unprecedented U S. Dollar appreciation, we have raised the midpoint of our fiscal 2022 adjusted EPS guidance for the second time this year and we have reiterated.
Our fiscal 2024 financial targets.
As we have consistently proven our teams are agile and the inherent attributes of our business model and strategy result in a more predictable and resilient business.
Please turn to the next slide.
Now turning to our backlog of key wins and pipeline.
Our backlog in the design business, which accounts for 90% of our MSR and profit increased by 10%.
And total backlog is now more than $41 billion, a 5% increase.
This performance reflects our high win rate and our focus on pursuing and winning high quality backlog.
Our book to burn ratio in the quarter was one two times led by $1 five in the Americas design business.
With this performance there are a few key wins and trends that demonstrate the success of our strategy.
To that point, we were recently selected for a nine figure program management contract for one of the largest greenfield transportation projects in the United States.
Our bid emphasized collaboration across the business.
In addition, we embedded key digital elements into our proposal, including the program management digital toolkit, we announced last quarter to create a differentiated offering for the client.
We also had several wins that showcase our sustainability and decarbonization initiatives in the transportation sector. We were selected by the Arizona Department of transportation to develop a statewide plan to deploy EV charging stations.
In addition, we were selected by New Jersey Transit to provide design and engineering services to advance the agency's zero emission strategy.
Electrification and vehicle automation are key growth markets for <unk> com and we are leading with innovation.
We have developed proprietary digital tools to accelerate growth.
For example, EV ready as a tool to help clients integrated electrification of transit systems into existing infrastructure.
These tools are in the market today, helping clients advance their strategies, which is furthering our reputation as a partner of choice.
I'm also pleased to report that we were selected for a substantial water reuse project in California.
Persistent droughts have pressured water supply and this is a signature win that showcase our leadership in the water reuse market ahead of a substantial expected spend in the coming years.
Our leadership in the growing <unk> faster mediation market was reflected in a wind design a PFS treatment system for the city of Madison, Wisconsin, We.
We will be tailoring the designed to match IHA requirements and best position the project for future IHA funding. This project is emblematic of a number of wins and opportunities. We are pursuing with smaller upfront work being awarded us our clients position for the greater IHA funding now becoming available.
Please turn to the next slide.
Turning to trends across our markets in.
In the U S. There's been $114 billion of IHA funding announced is available and notices of funding opportunities are accelerating.
Consistent with our prior forecast, we expect funding almost meaningfully benefit our markets in fiscal 2023 and beyond.
Today clients are beginning to mobilize for this expected growth.
We can see this momentum in our pipeline were identified opportunities have increased by nearly 40% and we expect bid submissions to accelerate in coming months as a result.
The strength in federal spending is coming in an opportune time.
Our state and local clients, which represent 23% of our MSR are also in a strong position budgets are at record levels, which creates a backdrop of predictable market growth for us against the broader market volatility.
Turning to our international markets in the U K, we are benefiting from the key framework positions. We have secured over the past several years supporting strong growth in the quarter and confidence as we look ahead.
In the Middle East work is progressing on our large multiyear program management and design contracts for the substantial investments being made in neon and Lula.
We also grew in Australia, and Hong Kong, where demand for large scale transportation projects remains strong.
However in mainland China, the ongoing uncertainties created by Covid policies continued to impact us that we are managing through this with the performance of other parts of international business.
Broadly across the business, we are delivering high value organic growth in a highly disciplined way. Despite the ongoing fierce competition for talent in our industry. Our disciplined approach has resulted in profitable growth.
Let's turn to the next slide.
As our results demonstrate we are operating from a position of strength with great momentum in both our business and across our markets.
Our investments in digital Advisory and program management have created new opportunities differentiate us from peers and expanded our addressable market.
Our deliberate capital allocation policy has resulted in strong shareholder value creation.
We have not being distracted by risky and expensive M&A instead, our focus is squarely on executing our profitable growth strategy as well as returning cash to shareholders through stock repurchases at a discount to peer and M&A valuations and our quarterly dividend program.
Underpinning all of this is our strong balance sheet, which is a competitive advantage.
Taken together, we are well positioned for sustained growth and success, which supports our financial guidance for this year and through 2024.
With that I will turn the call over to Laura.
Thanks, Troy, Please turn to the next slide.
To Echo your comments I think in <unk> globally strategy has transformed how we operate and go to market in several ways.
We've created a culture that inspires and demands collaboration and as a result, we are collaborating like never before when we perceive our must win opportunity that can transform our position in the marketplace. We bring the totality of our global capabilities and experience to bear which has resulted in a record win rate market share gains.
And created a positive client feedback loop that is reinforcing this approach.
Second we are investing at high levels in the professional and technical development of our nearly 50000 people. This includes regular technical Academy, where our expert share best practices and technical Knowhow to ethane.
The result is even greater alignment on our vision and greater collaboration across disciplined we are ensuring our clients get the best of <unk> capabilities every single time.
Third we are attracting and retaining the best talent in the industry, we emphasize a superior career opportunity they come to meaningfully benefit clients and communities.
In addition, we have enhanced our benefits and we are supporting our employees desire for increased flexibility through our freedom to grow initiative.
I am pleased to report that our efforts are paying off in a recent companywide survey, 75% of our employees said they would recommend <unk> as a great place to work.
Fourth we are building our capabilities to address growing demand for environment sustainability and resilience prior heat and we are winning.
<unk> that reflect a multi disciplined leadership in this area.
A great example of this was that selection to provide environmental Master planning services, the greater Toronto airports authority. Our client is pursuing ambitious sustainability targets and we are best suited to help them deliver.
Across the ultra seats I'll focus on environmental improvements positive social impacts energy savings productivity enhancements digital solutions and overall efficiency of becoming instrumental in our success.
And I am pleased that our leadership position in this area remains very strong in fact last week a number one position in the environmental Engineering and science markets were <unk> by Engineering news record and we improved to the number two environment overall eclipsing all of our professional services peer.
Finally, our growing suite of digital E com products and tools have deepened our engagements with our clients.
Instance are proprietary.
Digital tool is helping clients best positioned for specific funding programs and it's also allowing us to engage with clients earlier and more meaningfully in their programs.
<unk>, our head count of digital experts and data scientists is over 2500 strong and growing defense can bring innovative solutions at this scale today clients globally, so quickly which creates enduring competitive advantages.
With a strong foundation in place and further progress on our strategic priorities. We are confident that <unk> will continue to lead the industry with our expectation of delivering growth over the long term.
With that I will now turn the call over to Guy.
Thanks, Laura Please turn to the next slide.
We delivered another strong quarter, demonstrating the strength of our professionals and benefit of our bank and our global strategy.
Organic MSR increased by 6% year to date, adjusted EBITDA increased by 9% and year to date adjusted EPS increased by 28%.
Our margins were also strong and continue to lead our industry, reflecting our focus on high returning organic growth opportunities and our culture of continuous improvement.
Year to date, our operating margin has increased by 60 basis points to 14% and we are on track to deliver at least 14, 1% margin for the full year consistent with our guidance.
The underlying outperformance of the business gives us confidence to consistently deliver on our commitments. This performance and outlook further supports our expectation for approximately 6% MSR growth in fiscal 2022 across the company.
Please turn to the next slide.
And as our growth in the Americas was 4% with strength across the business.
We also had one five book to burn ratio in the design business and contracted backlog increased by 19% in the Americas.
Our wins and pipeline were strong and when combined with the expected increase on <unk> funded projects and strong state and local budgets. We continue to expect MSR growth to accelerate into fiscal 2023 and beyond.
With respect to profitability adjusted operating margin was 18, 5%, which reflects strong execution and the high quality of our backlog.
Please turn to the next slide.
The International segment delivered 8% MSR growth, which included growth in all of our largest geographies.
Backlog increased by double digits highlighted by Europe , Middle East and Australia.
Contracted backlog also increased and is near a record high which is a great leading indicator of growth.
Margins expanded to eight 8% up 150 basis points from the prior year. This was the eighth consecutive quarter of sequential margin improvement, reflecting tremendous progress on our goal of achieving a double digit margin in this business.
Please turn to the next slide.
Turning to cash flow liquidity and capital allocation.
Our capital allocation policy is unchanged, we are investing at a high level in key initiatives to drive growth expand margins and competitively differentiate ourselves we are continuing to deploy substantially all available cash flow to share repurchases and dividends.
During the quarter, we bought back $105 million of stock and through the first three quarters. We have bought back nearly $400 million of stock in total we have now bought back approximately $25 million of shares over the past two years or more than 15% of our outstanding shares.
Including our July payment, we have also paid more than $60 million of dividends. This year. As a reminder, it is our intent to grow our per share dividend by a double digit percentage annually for the foreseeable future our.
Our ability to deploy capital is supported by strong cash flow and balance sheet certainty.
Operating cash flow was $205 million in the quarter and free cash flow was $183 million.
Our business has inherent attributes that led to consistently strong cash flows through cycles. These include a highly variable cost model strong backlog visibility a high quality and diverse client base and a highly agile culture.
As such we expect to achieve free cash flow within our guidance range for an eighth consecutive year.
We also have a strong balance sheet, which creates certainty for us as that market and rates have been more volatile of late.
We have a high degree of certainty on cost of 80% of our debt over the next several years and we have no bond maturities until 2027, and we believe our balance sheet is a competitive advantage. Please.
Please turn to the next slide.
Turning to our financial outlook.
Despite unanticipated external headwinds we are delivering.
As a result, we are increasing our adjusted EPS guidance for 2022 for a second time this year and we now expect to deliver between $3 35 and.
And $3 50, which would reflect 21% growth at the midpoint.
We have also narrowed our adjusted EBITDA guidance to between $890 million and $910 million or 8% growth at the midpoint.
While we could point to foreign exchange or other factors that are impacting the market. The business is outperforming our initial expectations.
I should note that for modeling purposes, our MSR guidance is on a constant currency basis, but you should factor in approximately 300 basis points to your revenue forecast for the fourth quarter to reflect the impact of foreign exchange translation the impact to margin and profitability are already captured in our guidance.
We continue to deploy our strong cash flow to buyback our stock, though I will note that our guidance does not incorporate any benefit from incremental share repurchases, we expect to execute in the balance of the year.
Our accomplishments to date and favorable long term market trends support our confidence in our long term 2024 financial targets, including.
Including our expectations for at least 19% adjusted EPS CAGR from fiscal 2021% to 2024.
With that operator, we are ready for questions.
Thank you we will now start our Q&A session if.
As you would like to ask a question. Please press star one on your telephone keypad.
If I had to ask a question. Please ensure that your line is on mute locally.
Our first question comes from Sean Eastman at Keybanc capital markets. Please go ahead.
Hi, everyone. Thanks for taking my questions and nice quarter.
I wanted to hone in on the win rates, which had been hovering around all time highs all through this year.
I mean, obviously from a headline perspective that sounds positive.
But I'm wondering if this elevated win rate is optimal, particularly with end market activity levels continuing to accelerate I wondered if perhaps the returns targets embedded in bids actually need to be raised as we go into next year.
Yeah, Sean Thanks for the question and good morning.
So.
There's a there's certainly a balance to be struck in terms of what your expectations are and what you are focusing on but I mean no.
No doubt a high win rate is an important thing.
It allows us to maintain that balance or investing in the business and invest in the future and also finding that balance of improving our margins.
So that's number one number two is.
We're very deliberate in terms of what we're focused on.
Well our win rate is very high a really important element of that is the quality of the backlog that we're winning.
We are we are winning projects that are complex, they're long in duration that for key clients.
<unk> and differentiate ourselves by the level of importance in the communities.
That we're working in and ultimately those wins are momentum changing for the business and again not all not all wins are equal.
So when we talk about that high win rate, we believe thats important because it talks to the.
Thinking about disciplined investing but also again the quality of the backlog is important because the things that we win change the momentum of the business and they have this flywheel effect that one.
More people to join clients are more interested in what youre doing and attracts larger and better opportunities. So we're focused on two of those elements in that second element of quality backlog doesn't typically come through in the numbers that we discussed but it's an important element of what we're doing.
Okay. Thanks for that and then I wonder if.
Just relative to the tight hiring environment would you say this is becoming more or less of a concern as it relates to.
That being a governor on growth over the next one to two years versus say.
The start of the year.
Yes.
Yes again.
We think of it as a governor on growth.
There is no question about that because while we are doing things to improve the way that we deliver and how we deliver so that we can create.
More capacity in our People's days.
The work there is no doubt that in our industry. There is certainly is.
But certainly as a constraint on.
<unk> experienced and seasoned professionals to deliver the work that we do so we think about this in a couple of different ways. One is we're entirely focused on investing in our people and creating.
The greatest opportunities for them and we think about that deploy value proposition to attract the best of the firm.
And then the other things we've been doing is again investing in digital to extend the capacity of what our people do.
And then we're working to invest in capability centers.
We can become better at distributing the work around the network can become more efficient and those are the those are the three things we're focused on to try to address a constraint but.
<unk> certainly in the short term it is a constraint as we go forward.
We expect that it will still be a constraint, but in the world where people are saying, we're in a recession or projected recession that those conditions could change.
Okay.
For that and I'll just sneak one more in.
Yeah.
Obviously there is.
A lot of tailwind in the business exiting fiscal 'twenty two.
But I feel like we probably need to calibrate the model around the moves in FX rates. So far this year.
So this is maybe one more for gar, but.
What are those.
What are the known kind of bridge items, there going into fiscal 'twenty three.
300 basis point drag on MSR from FX in the fourth quarter, how does that roll into next year and are there any margin nuances associated with that that we should be aware of.
Hey, Sean Thanks for the question Doug.
I will respond to that one.
You're right FX has been a headwind for us in the third quarter and we expect it to continue in the fourth quarter put it into perspective for six months.
<unk> is a headwind of approximately $15 million, but as we said in our prepared comments.
Our operational outperformance during the year is allowing us to overcome it if it weren't for the FX headwind, we would be at the top end of our range. We have provided committed too.
If you look forward and <unk> spot rates will hold there is no doubt it will be an impact to FY 'twenty three but currently where we're going through our planning process.
Can't really comment on what FY 'twenty three bridge will look like but in the coming quarter, we will definitely provide more clarity to it.
Okay. Thanks, guys I'll turn it over there I appreciate it.
Thanks, Sean.
Yes.
Thank you for your question.
Our next question comes from Michael Feniger at Bank of America. Please go ahead. Your line is open.
Hey, guys. Thanks for taking my question just.
You guys reaffirmed the 2024 EPS target 475, I know this is Scott touched on earlier, but just for the moving pieces for us to think about with with next year and to get to 2024.
A smooth and linear for us to kind of get to that 2024 number.
Obviously, you mentioned FX do we have to invest a little bit more <unk>.
Hi, Mo people invest in the growth that we could see even more in 2024 and get the operating leverage I guess I'm just trying to think about where we are exiting this year and that 2024 number how we should kind of be thinking about the step up over the next two years there.
Sure Hey, Michael This is Scott I'll take that question as well.
So we just reconfirmed our 2024 long term targets no additional comments specific to that but consistent with what Troy said earlier in his comments.
We've really created a platform here that is providing us a competitive edge and let me explain what I mean by that not only are we winning better than our share in the market were winning what we want in the market.
We're operating at the top of our peer group in terms of execution of projects delivering on margins and making strategic decisions.
On various other matters a great example of that is capitalization of our balance sheet, where we have created certainty on interest cost and.
<unk> to us and all of these things are driving to that competitive edge that we won and it's all backed by the investments we're making in the business to allow for sustained value creation.
Mitch made.
It makes sense and I think I would just.
I think that my next question kind of touches on that and Troy you mentioned it a little bit earlier, we are seeing a very big step up in M&A across the engineering space, even last night. Another one of your peers made another acquisition announcement.
How does E com view, just the pickup in the sector broadly and acquisition.
Missing out or do you feel you have enough of an investment and breadth to compete and basically are there any indirect benefits for E. Com as all this M&A occurring for you just to go and deliver your strategy anything we should kind of be thinking about.
We see all of these acquisitions happening around you over the last.
12 to 24 months.
Yes.
Great question. Thank you.
So first of all we have confidence in the strategy that we've adopted and I think that we've been showing again disciplined in what we're doing and it's coming through in our results.
I'll describe it a couple of different ways first of all is that we think that investing in organic growth.
And ultimately that means investing in our people and our markets and our clients.
And doing things that create a long term competitive advantage for us are the right things to do.
And it's coming through it's coming through in our results and when you think about what we're trying to accomplish in the long term is we're trying to be we're trying to again to get the highest return that we can and the capital that we invest we're trying to do it with the least risk possible.
And we believe that in this environment to invest in organic growth and returning to shareholders is the right way to go about doing that and again I'll just I'll make it a simple comment which is.
I think our job is to create long term competitive advantage and when you create long term competitive advantage no matter how people are allocating capital it pays off and to create that long term competitive advantage. We believe the right way to be doing this and to investing in our own business and we believe that's built up again, the least risky way to do that.
In the end of the day, how it pays off as it pays off.
In your EPS or cash EPS, CAGR and when we compare ourselves to our peers that are doing M&A, we see ourselves as having the highest cash per share EPS or EPS CAGR and so ultimately it gets confusing when you look at companies doing M&A and how they are growing new compared to how we're doing it organically but at the.
End of the day.
We end up having a higher cash EPS CAGR and then another another really important point as you said does that impact your ability to compete well heck no. We're already number one in the markets that we're in and even with our competitors doing M&A, we reaffirmed our position for example, as the number one engineering environmental engineering firm.
And we increased that gap surprisingly.
So again in terms of our ability or need to do M&A to compete we don't need to because we're number one.
Thank you for your question.
Our next question comes from Andrew Kaplowitz at Citi. Please go ahead.
Good morning, everyone.
Hey, good morning.
Can you update us on what's going on in your international business in terms of margin you. Obviously recorded your highest margin segment this quarter, but it is on and I'm sorry that was the lowest so far this year. So we know you've been taking restructuring I think for real estate consolidations that the biggest reason and a higher margin and if so where are you in that progression or is it more mix.
Related.
Yes, Andy this is <unk> I'll take that question.
The restructuring that we took just to clarify it's predominantly for our global business Center, where it's our captive center and we provide support services globally. It impacts all of our businesses and there are some duplicate real estate cost as we as we renew leases that come through.
Better also going through it but its duplicate costs that are going through.
Specific to the international margin question that you asked that has been a focus of ours, we are being very tactical by investing in the business PM and advisory opportunities.
<unk> and focused execution, we're again, probably going back to the last question that was asked we're not interested in building scale just for the purpose of having scale. We're interested in driving sustained shareholder value and this is again, a continuing result of what youre seeing a commitment not only to get to double digit margins in international.
But just like we are in the Americas be the leader of the pack in margins as well.
And Glen maybe I could ask you about free cash flow, obviously, almost $230 million to $330 million through Q3, I know you've said in the past that you're trying to smooth out cash over the quarters, but given just usual seasonality wouldn't you be at the high end of the $4 50 to 650 <unk>.
Deliver a normal Q4, and then just maybe a clarification on capital deployment.
This inflation reduction Act does pass do you think there is a 1% excise tax on share repurchases does that impact your behavior at all around repurchases.
Sure I'll take both of those questions on cash flow and end on the tax repurchase tax so first on the cash target.
We've delivered on our cash commitments seven years in a row and this year will be no different we will deliver on it our priority.
Is not only on delivering on that annual commitment, but making sure. We have the best facing possible. So we can take advantage of our capital allocation strategy as efficiently as possible.
Andy Yes, our cash flow. If you look year to date is up 15% year over year because of that phasing, but we have 40 to 50000 projects at any given point in time.
It's not 10% or 20 that can really pulled through and gives us the confidence that we will be in.
In a certain place, but what we do have confidence and like I said, we've delivered seven years in a row on our commitments either at or above our commitment and this year will be no different now specific to the tax repurchase tax.
We're always going to be committed in investing and what provides the best share holder value creation opportunity and for US that's looking at ROIC. It's looking at EPS growth to deliver the best ESR. Our stock continues to be undervalued, even though we have consistently outperform.
Our commitments.
And we see no change in that the plan put forth no doubt is unfortunate it impacts individual investors, who own E com shares through investments with institutions. So it is a triple taxation and let's see where it goes.
I appreciate the color guys.
Absolutely.
Okay.
Perfect. Thank you for your question. Our next question comes from Steven Fisher of UBS. Please go ahead.
Thanks, and good morning.
Your contracted backlog was up double digits year over year.
It was down sequentially I think some of that was FX and maybe some of the building construction business I guess whats your take on the trajectory of the contracted backlog from here.
Delighted that as an important leading indicator for the business. So just curious what youre expecting going forward on that.
Yes, Steve Thanks for the question.
Again.
Think you actually made the important point for us which is that contracted backlog is a leading indicator of the future.
So.
We look forward and we think that that certainly is going to be helpful.
As we exited the year and head into next year.
But there's a couple of other things that I think are important as well to to indicate the future trajectory of the business.
And in one of those that we haven't spoken about is just pipeline.
And.
We're constantly looking at how our pipeline is doing is giving is giving us an indication of what the longer term future looks like and certainly we are seeing our pipeline that's been increasing mid.
Mid single digits consistently over the last three quarters.
But what's really interesting and that is that when we look at.
What we what we referred to as the.
Part of our pipeline that we believe is moving to later stages, we see sort of a significant increase in that pipeline and what's moving into the later stages that we're going to bid on in the relatively near future and that is increasing at a faster rate. So when you take that combination together an increase in pipeline and an increase in.
The things that we're going to be bidding on in the relatively near future and our contracted backlog.
All of those things.
Two good long term trends for our business.
Okay. That's helpful. I guess, maybe to follow up there to what extent does that pipeline commentary include the construction the building construction business.
I guess I'm curious if that is maybe kind of bottomed from year have you kind of stress tested what that business could mean I know, it's only like 9% to 10% of <unk>.
<unk> revenues, but do you think it's now kind of maybe stable from here and the backlog or do you see things in the pipeline that will actually get that too.
To grow again going forward as well over the next handful of quarters.
Yeah, Steve Good question.
Look what I made my comments I was referring to the entire business, but I'll address the <unk> separately and the fact is is that the backlog.
Is a little lumpy as it grows but nevertheless in the quarter our book to burn was one times.
And that backlog has been growing consistently you take out the lumpiness, but to your point about what do we see in the future our pipeline in the construction management business is at an all time high.
And so.
It's been increasing as well.
Consistent with what we see in the design the global design business.
No.
That's again.
That's also a good good news across our entire portfolio and I'll just a couple of comments around why we see that at all time high I think it's the nature of our diverse portfolio that we have that business if I look at <unk>.
80%, 85% of the work they do it falls in the categories of aviation.
Office and residential buildings sports venues and within that there is actually a large investment would be made here in the U S and convention centers.
Which is something that I don't think was being invested and certainly during the pandemic and now we're seeing a fairly significant and broad opportunity and investment cities or making the convention centers to attract people to their studies.
And from a hospitality so when we look at again, our construction management business. The pipeline is at an all time high. So we feel again, we feel good about that when I think about our construction management business as we have been winning and right now we sit with I think a little more than three years of work in our backlog.
Almost four years of work.
Okay. Thanks very helpful.
Yes.
Thank you for your question. Our next question comes from Jon <unk> RBC capital markets. Please go ahead.
Great. Thanks, and good morning, So I guess a question on the international segment I know you've been working as an organization towards improving gross margins for some time I guess.
Given where they are today, how much of that is kind of the restructuring and reorganizing work you've done that and I'm, assuming there's some contribution from these bigger projects like neon Theyre, just thinking over the long run that some of those projects cycle out.
The reorganization or just kind of picking up that business.
And how much is how much of it.
Martin So do you think are more structural that will kind of stick through equivalent of two to four years.
Yes, good morning and.
I would think about it again, our international business. The work that we've been doing over the last few years to strengthen that business has paid off first of all.
That business is very strong so our international business is very strong and it's winning large transformative projects at a very high win rate.
I.
I don't I don't see the trajectory of that business changing they are a great long term opportunities around the world for that business to be.
To be pursuing with our customer base and the businesses very healthy.
Again, all businesses, our entire business, we're always looking for opportunities to make sure that we continue to drive efficiency and improve the overall business, but that's not going to be a massive changes, but we're always looking to make incremental changes, but again I just I look at our international business and it's an incredibly healthy and strong business for the long term.
<unk>.
Okay, and then just maybe a comment commentary earlier around the pipeline can you maybe give a little bit of color on.
The feedback was the mix of the business for building across public versus private.
More tilted toward one side and have you seen any change in tone at all.
Based on where kind of the macro is that ethanol.
Sure I guess first.
An easy question to answer is we really don't say cigna.
A significant change in the mix between.
Private.
Our public customers, we referenced our R. R.
Our government customers represent about 60% of the work that we do and its fairly consistent in our backlog.
And then in terms of the overall mix.
Think about it this way as our mix of business is really driven by.
The longer term megatrends that we've been talking about I mean, they are just clearly is a significant investment that's coming across the globe in infrastructure and Thats.
That's saving our transportation, our water our environment business and our buildings in places business. So it's a very.
Again.
Very diverse investment infrastructure and are well positioned for that so there's nothing unusual in the trends.
But we're seeing those trends are broad and they benefit the entire business.
Great. Thanks, so much for the color.
Thank you.
Our next question comes from Michael Dudas at that squeeze.
Please go ahead.
Good morning, gentlemen, Laurel.
Hi, good morning.
Just in your prepared remarks, I think Troy you mentioned about MSR.
The growth in Americas declined 6% this quarter and you said, it's accelerating into 2023 so.
I assume similar numbers fourth quarter, Ken that growth I guess, given the backdrop that you're positioned.
Salaries, so that 6% just early look into 2023.
Hey, Michael This is <unk> I was the one who commented <unk> was formed.
Americas organic growth was 4% in Q3, and we did reconfirm.
That we will approximately up 6% MSR growth company wide consistent with our commitments and that's at constant currency.
No comments on FY 'twenty, three but couple of things you could take a look at is what Troy alluded to earlier, our contracted backlog is up significantly specifically in the Americas, It's up 8% year over year that provides us a lot of confidence going into Q4 and into Q3 on accelerating growth before.
The IHA funding hits the ground.
Got it understood. Thank you second question.
And us.
What you do with your clients and your exposure to clean energy.
Certainly all the noise coming out of Washington.
The excess funding thats going forth.
Tom we can in that mix and those other areas.
Support maybe some differentiated growth for you guys over the next several years.
Yes, Michael it's Larry I am happy to take.
That question.
Got it.
Investing significantly in our technical capability and a great example of that is.
A new global leader for offshore wind, we see significant.
Wind opportunities across all of our operations.
And then obviously so much activity in the.
EV space as well and that's another Great example of applying some of that digital tools in particular, the combination of continuing to invest in technique.
Technical capability and some of these rapidly growing areas in conjunction with the application of digital tools.
I think gives us a lot of confidence about that.
Segment of that business.
Is it going to be better growth in some of the other areas because it's from a different base or just the fact that you're going to be adding some more skill sets and tools to be able to penetrate some market share there.
Yes, Michael this is <unk> I'll take that we don't break our growth targets into that level of detail, but we do provide our long term guidance no doubt to Laura's point based on the investments, we're making we do expect to receive some significant return on our investments as we move forward based on our pipeline.
Great. Thanks, Thanks, everyone.
Thanks, Mike.
Thank you.
Next question comes from.
Adam Tomo at Thompson Davis. Please go ahead.
Hey, good morning, guys nice quarter.
Thank you Troy I think you I think you said something.
It might have been a transportation comment that the pipeline of identified programs is up 40%.
Is that right.
I don't think I said, the transportation pipeline was.
It was up 40% what I, what I, what I mentioned was within our pipeline, we have different categories of pipeline and so think about it as the initial prospect all the way through to placing a bit.
Kind of in the middle of that we have a clear line of sight. The projects are coming to market I'm going to use our own terminology, which again, it's our own terminology, but we view that as a place where that work is in the capture phase and so we know that is coming to market and we're going to bid.
So our pipeline when we look at is it's not linear in terms of its growth, we see lumpiness in that phase and that piece of our pipeline is up 40% year over year, which means that there is a big lump of stuff that's going to come to market and we expect that to come to market in 'twenty three and.
And so again that bodes well for the long term health of the business.
How do we think about that in terms of your.
Your win rate.
The big number plus 40%.
I would be very positive.
Could be I think it.
Thank you look forward do you think that with the win rate and the things that we're doing to create long term momentum in the business and create competitive advantage.
No.
It certainly bodes well for the long term health of our of our backlog of the business and the business itself.
So stay tuned Okay, and then just quickly the Arizona.
Charging award I was just curious.
What's your scope on something like that or are you looking at the resiliency of the grid. In addition to just.
Just the charging infrastructure.
Yeah, So it's a.
Again.
It's a broader advisory engagements.
I am not.
I'm not going to talk about the specific scope of our client engagement, but it certainly is an advisory engagement to help build a plan.
For the state to figure out how do they build towards their defined E vehicles in the future.
When you think about that that really is a really important part of what we do we look around the world and we see.
People defining these large long term ambitions.
But as we've seen over the last world over the last.
A quarters is that.
A lot of people have yet to define the solid path to get to the end state.
Think about this.
An important goal that the state of Arizona is set and we are.
Working with them to build a long term plan for them to get there and so it's fairly broad in its ultimate approach.
Got it okay. Thank you Chuck.
Yes. Thanks.
Thank you.
And as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
And our next question comes from Jamie Cook at Credit Suisse. Please go ahead.
Hi, good morning nice quarter.
Most of my questions have been asked I guess Troy just your portfolio today, obviously in your focus is very different.
Relative to the prior E Comm just wondering.
If we are to go into a recession or in a recession, which parts of the business do you think would be most impacted and how resilient would <unk> com's earnings be just given some of the secular growth tailwind and maybe in general what levers you have to structurally improve margins. Thanks.
Okay. Thanks, Jamie.
So.
First of all I'll say that.
When there is a recession everybody is impacted by the recession, but I would describe us as.
Not being as impacted as others.
And for a couple of different reasons, one is I think even within a recession or recessionary trend that.
We see.
A lot of funding that is coming in to infrastructure and it's coming into continued to trend the transform the world in terms of environmental and social improvement.
And frankly, there are some longer term trends post COVID-19.
So even if there is a broad recession, we look at this and say well with inside that recession or things that we do are going to receive funding and funding for the long term so that bodes well for the long term health of the business even in a recession, but then I look at as you described right. There's some attributes of the business that put us in a very very good position to work our way through that one is.
Our backlog we have long.
Lived backlog in the business. We also have an asset light business and a business that can be agile to react to shorter term market volatility.
And then the other thing that happens is again, just sort of being where we are the number one position in our industry as customers typically coalesce around the number.
The number one company in terms of a recession. So theyre session, usually hits smaller organizations are organizations that don't sit at the top.
Top of a particular industry.
And then I'll just point out that we certainly have had experience with this in the past that if you go back to 2008.
There was a recession and it was fairly dramatic.
The E comm business at that time was a consulting business and a design business and we grew 2009 through 2012. So I think that's a proof point to the resiliency of the business to a recession.
Thank you.
Thanks, Jamie.
Thank you. Our next question is a follow up question from John . Please go ahead.
Yes.
Great. Thanks.
As a bit of commentary earlier in the call around the labor situation I guess, how are you planning for that just given some of the potential recession concerns, but also with the IHA ramping up next year, what kind of how you're balancing the two and making sure you have enough people in seats when the demand flows there.
Yeah.
Thanks for the question, it's Larry I'm happy to take that one.
We're pretty optimistic we just in this last quarter design head count increased.
By the 4% year on year. So it's certainly one of our focus areas at the moment and not only have we really ramped up in terms of talent acquisition capability, but another key part of our strategy is the enterprise capabilities and as we are building long term capability and centers of technical expertise and a great.
Sample of that we see continuing trend for <unk>.
Transit for example, all the pent up demand and congestion and all that.
Major cities, we have a number one position in transit we have quite deliberately built up.
Capability centers in Madrid, and the U K for example.
Have that capability for the longer term. So it's a combination obviously of short term hiring in local market supplemented by our enterprise capability Center strategy, which gives us a lot of confidence.
Okay. Thank you.
Thank you.
Thank you for your question.
At this time that does have a question and now I'd like to pass over to Troy Rudd CA for any final remarks.
Great well, thanks, everyone for joining us today, and again I'm just going to finish the call by complementing the people here at <unk> com.
They've done a fantastic job in finding the right balance between pursuing profitable growth today and for the long term.
While continuing to recognize that we can continue to improve by expanding margins and while doing all of that continuing to make investments in.
In the business to drive our long term competitive advantage.
I think the mall the.
Dedication to our mission.
When you have a nice day.
Thank you everybody for joining today's conference call you may now disconnect.
Okay.
Okay.