Q1 2023 AECOM Earnings Call

Speaker 2: Good morning and welcome to the AECOM First Quarter 2023 Conference School. 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 re-broadcast of this information in whole or part without the prior written permission of AECOM is prohibited.

Speaker 3: As a reminder, AECOM is also signable casting this presentation with slides at the Investor section at www.aem.com. Later, we will conduct a question and answer session.

Speaker 4: If you have a question, please press start then one on your touchtone phone.

Speaker 5: If you wish to be removed from the queue, please press star and two.

Speaker 6: I'd like to turn the call over to Will Gabriellefke, Senior Vice President, Finance, Treasury and Investor Relations. Please go ahead.

Speaker 7: Thank you, operator. I would like to direct your attention to the Safe Harbor Statement on page one 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 statement due to various risks and uncertainties.

Speaker 8: including the risks described in our periodic reports filed with the SEC. The sets are required by law. We undertake no obligations to update our forward-looking statements. We use certain non- GAAP financial measures in our presentation. The appropriate GAP reconciliation are incorporated into our materials which are posted to our website.

Speaker 9: Any references to segment margins or segment-adjusted operating margins will reflect the performance for the Americas and international segments.

Speaker 10: When discussing revenue and revenue growth, we will refer to Net Service Revenue, or NSR, which is defined as revenue excluding pass-through revenue. NSR and backlog growth rates are presented on a constant currency basis, unless otherwise noted. Today's remarks will focus on continuing operations.

Speaker 11: On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy, and our outlook for the business. Laura Poloni, our President, will discuss key operational successes and priorities. And Garth Kupfer, our Chief Financial Officer, will review our financial performance and outlook in greater detail.

Speaker 12: We will conclude with a question and answer session. With that, I will turn the call over to Troy.

Speaker 13: Thank you, Will, and thank you all for joining us today.

Speaker 14: I'd like to begin by acknowledging the continued commitment of our approximately 50,000 professionals to fulfilling our shared purpose of delivering a better world.

Speaker 15: We have the best teams in the industry, and our widening competitive advantage stems from their passion, technical expertise, and global collaboration. Our continued high win rate, record design backlog, continued margin expansion, and strong cash flow are a testament to the strength of our teams and the benefits of our strategy. nation's

Speaker 16: Nearly all of our end markets are growing and we are aggressively adding to our workforce to deliver on our commitments.

Speaker 17: Strong end market conditions and the continued growth of our professional workforce differentiates us from many businesses that are seeing macro conditions continue to soften.

Speaker 18: I also want to highlight that for the third year in a row we could be recognized as the most admired company in our industry by fortune.

Speaker 19: This is a great accomplishment and I couldn't be more proud of our people.

Speaker 20: Turning to our financial performance.

Speaker 21: Organic NSR growth accelerated 8%, which included strong growth across both segments and was led by 9% growth in design, which matches our highest for the past decade.

Speaker 22: Notably, our growth in America's design business continued to accelerate. State and local activity remained strong and when combined with the unprecedented infrastructure funding in the U.S.

Speaker 23: and the increases in the recently enacted 2023 US federal budget, we are confident in a multi-year growth cycle.

Speaker 24: Our segment adjusted operating margin increased by nearly 40 basis points to 14%, which is a new high for a first quarter. Our profitability leads our industry and reflects strong execution, the benefits of our strategy and our lower risk, higher value backlog composition.

Speaker 25: We are well advanced in our path to deliver on our 50% fiscal 2024 margin target, and we are increasingly confident in our continued margin expansion or time.

Speaker 26: Adjusted EBITDA of $224 million and adjusted EPS of 86 cents were consistent with our expectations and included strong underlying operational growth. Consistent with our track record of delivering on our commitment, strong operational performance contributed to 19% growth.

Speaker 27: to year-over-year earnings, which allowed us to deliver on our targets despite macro-related factors.

Speaker 28: Pre-cash flow is also strong, which enabled the execution of our returns-focused capital allocation policy. Our primary use of capital include investments in organic growth opportunities, share repurchases, and our quarterly dividend program.

Speaker 29: I should highlight that our recent January dividend marked a 20% increase over our prior payment, which is consistent with our intent to grow our Pursher dividend by a double budget percentage.

Speaker 30: Importantly, we are prioritizing our investments to pursue transformational growth opportunities where we have a competitive advantage.

Speaker 31: This resulted in another near-record high-wind rate, strong back-long momentum, and an unprecedented level of visibility.

Speaker 32: The design backlog increased by 9% to a record high, which is an acceleration from the prior quarter, and was driven by a 1.3 book to burn ratio.

In addition, our pipeline of opportunities is also at an all-time high.

This includes a nearly 30% increase in proposals and bids submitted, which is up from 20% growth in the prior quarter.

As a result, we are confident that our design backlog will continue to increase as the year progresses.

across our business.

The benefits our Think and Act Globally strategy are apparent in the changing composition of our backlog.

Let me share a few examples.

During the quarter, we were selected for the sizable water program management contract in Southern California. This win resulted from collaboration between our world-class water and program management practices.

which led to an unrivaled technical solution for our client.

In addition, this wind fortifies our leadership position in this rapidly growing region, where last quarter we won the Science Bowl Padre Dam Advanced Water Purification Program in San Diego.

As a result, we are well positioned to benefit as the billions of planned investments to address persistent drought and water supply challenges increase.

We were also successful in our selection for the Navy-specific clean program, which builds on our success with this client, including last year's award of the Atlantic Clean Program.

All programs will run for at least five more years.

We are experiencing a similar trajectory in our number one ranked global transportation business.

In Canada, we were selected to serve as the technical advisor on a transformative light rail project, creating visibility over the next decade on a marquee project in the region.

In addition, while not reflecting on our first quarter backlog, we've been notified that we were selected on another nine-figure win in the global rail market.

We are very deliberate in how we allocate time and capital.

with a focus on the best return and highest value opportunities.

As a result, an increasing share of our winds are generated from...

and additional phases on existing programs. In fact, our largest first quarter design win was an additional phase to an existing project we already held.

Several of our first quarter wins have the potential to increase in value.

We have identified more than $500 million of potential incremental opportunity from the first quarter wins that we expect to add to backlog over time.

This demonstrates the more valuable composition of our winds and backlog and with it contributes to our visibility and confidence.

Also contributing to our confidence is a funding growth across our largest end markets.

In the U.S., the initial wave of IIJ funding is beginning to materialize in our pipeline, and we continue to expect the benefits from IIJ funds to accelerate through the coming years.

And increasing share of our activity today is helping clients position for this funding, and clients are increasingly turning to us to utilize our digital AI-powered tool, Fun Navigator.

in Canada.

Provincial investment in the rainfall infrastructure and market where we lead is supporting NSR, Backlog and Pipeline Growth.

The same is true in the UK where we have an established position on key frameworks and are converting large pursuits to wins.

In Australia, our momentum continued, including another win in the first quarter, which has further extended our backlog visibility. And finally, in the Middle East, our backlog and NSR have increased at a double-digit pace due to our positioning on the substantial infrastructure investments transforming Saudi Arabia. For more information, visit www.nrs.gov.au

As we look ahead, we remain committed to executing our strategy, which is focused on expanding our dressable market to organic growth in our advisory, digital, and program management practices.

driving collaboration to fully capture the strength of our global platform.

prioritizing our time and capital on the highest returning growth opportunities.

Investing in digital AECOM at an unprecedented rate to lead our industry through digital transformation. And finally, creating an industry-leading employee value proposition to attract and retain the best professionals in the field.

Taking together, we are better positioned than ever to capitalize on the growing set of opportunities in front of us. Our competitive advantages are expanding the long-term earnings power of the company.

As a result, we are reaffirming our 2023 financial guidance and remain confident in delivering on our long-term 2024 financial targets and aspirations.

With that, let me turn the call over to Laura.

Thanks, Troy. Please turn to the next slide.

I'd also like to acknowledge our teams across the globe for another strong quarter. We've built a culture around collaboration and expanding our competitive advantages, and our strong performance represents the realisation of our strategy.

In nearly every conversation with our clients, we receive consistent feedback. Our teams are delivering unrivalled technical solutions.

Our technical proposal is the most often cited factor in our wins. These technical capabilities are an essential element of our competitive advantage, which is apparent in our consistently strong win rate. And we are winning half of every dollar we bid.

The great work we do is a reflection of our professionals and we are energised by the opportunities ahead.

Across our markets, we are ideally positioned to capitalise on the three circular mega-trend, including growing global infrastructure investments, investments in sustainability and resilience, and post-COVID supply chain and asset investments.

These drivers were prevalent in several of our recent wins.

In the US, our leadership in sustainability and resilience continues to be a differentiator. For instance, investments to modernise and strengthen the US electric grid are expanding. This was highlighted by our selection to support a key renewable energy client in the US.

on a large interstate transmission line that will leverage both our technical capabilities and our innovative digital planning gauge tool for the NEPA Environmental Impact Statement.

In addition PFAS activity is accelerating ahead of expected regulatory milestones in 2023.

We are the leaders in this market and our backlog for PFAS related programs increased by 40% in the quarter.

Finally, we were selected to advise the City of New York on its cloud-burst program, which creates clustered stormwater management projects in floodprone and underserved communities across the city.

This win positions us to deliver similar services in other metros globally which plays to our strengths.

In Australia, the government is investing at record levels in transportation infrastructure. We won the design contract for a substantial highway tunnelling project in the first quarter, building on a series of large transportation wins over the past year. The ingenuity of our global tunnelling expertise was critical in developing a technical solution for the client that reduced the...

key projects that support this vision.

To fully capitalise on the accelerating set of opportunities ahead, we are continuing to make investments in our teams. This includes our increased investment in US healthcare benefits, which we rolled out earlier this year, and ongoing investments in technical academies to bring professionals together and foster collaboration.

I am pleased to report that we are experiencing a strong return on these investments. Our workforce is growing, employee engagement is high, and employee retention across the globe is ahead of our internal targets.

The return on these investments is essential to retaining and attracting the best professionals, which is key to expanding our competitive advantage.

Across our business, our technical excellence, empowered by a culture of collaboration and focus on pursuing the best growth opportunities, have contributed to substantial momentum in our business and energise us as we pursue a record pipeline of opportunities today.

With that, I will turn the core over to go.

Thanks, Laura. Please turn to the next slide.

The strength of our financial results is a testament to our focused allocation of time and capital to the highest returning opportunities, the strength of our teams, the power of harnessing that strength through collaboration, and our discipline capital allocation policy that is driven by one key element.

Return on investment.

Importantly, we exited the first quarter with even more momentum than we entered.

NSR and backlog growth accelerated, our win rate especially on transformational pursuits is at historic levels and funding behind the three secular mega trends driving our business is firmly in place.

Just as importantly, we are delivering profitable growth. Our segment adjusted operating income margin increased by nearly 40 basis points, which is consistent with the expectations in our fiscal 2023 guidance for a 14.6% margin.

Our performance reflects the competitive advantage we are creating by investing to expand our addressable market, collaborating across business lines and geographies, and narrowing the focus of our time and capital on the highest value opportunities.

Please turn to the next slide.

NSR and America's design business increased by 6% and marked an acceleration from the prior quarter.

The adjusted operating margin expanded by 50 basis points to a new first quarter high.

Visibility continues to increase with backlogs of 7% driven by a 1.2-look-to-burn ratio. In addition, our contracted backlog is at all time high and did in proposal activity increased by double digits.

These trends are a direct result of our accelerated business development activity we spoke about on our fourth quarter conference call.

The growth and profitability profile we are delivering is enabling us to invest.

to capitalize on the growth opportunities I had to create the best long-term earnings power while also continuing to deliver on our margin expansion targets.

Please turn to the next slide.

Turning to the international segment.

NSR growth increased by 12%, led by the UK, Australia and the Middle East, where we have built an incredibly strong backlog position over the past two years.

Margins also expanded, which reflects our narrow focus on key markets and sectors that drive the most value to the organization.

That clock growth accelerated to double digits with 1.5 Book to Burn ratio.

We are now positioned on several multi-year projects with billions of dollars of committed funding, which creates an enhanced level of visibility.

Please turn to the next slide.

We had a strong start to the year on cash flow with $84 million of free cash flow in the quarter, which continues to reflect better phasing.

It bears repeating, our cash flow remains consistently strong because of the rigor we put into converting earnings to cash and the inherent attributes of our professional services business, which includes high quality clients with strong balance sheets and the higher margin and lower risk nature of our work.

As a result, we are able to invest in our organic growth opportunities and have substantial available cash to execute our other capital allocation priorities.

After investing in organic growth opportunities, share repurchases remain the highest and best use of our cash flow.

Our quarterly dividend is a key element of our long-term commitment to return capital to our shareholders.

During the quarter, we returned approximately $70 million in total, and we have returned approximately $1.6 billion to shareholders over the past two and a half years.

Our balance sheet remains in great shape with no bond maturities until 2027 and 80% of our debt is fixed or capped at highly attractive interest rates for several years to come.

Please turn to the next slide.

Turning to the financial outlook, we are affirming our guidance for all metrics built on strong foundation we set in the first quarter and the strength of our strategy that has created strong visibility for the remainder of the year.

We continue to expect 10% adjusted EBITDA and EPS growth at the midpoint of the ranges on a constant currency basis, with organic NSR growth accelerating to 8% for the year compared to 5% last year.

We also continue to expect segment adjusted operating margin to increase by 40 basis points to 14.6%, which would mark a new annual high and continue to lead our industry.

Our ability to expand margins while investing in our teams and delivering accelerating top-line growth is a testament to the strength of our platform.

With that operator, we are ready for questions.

Thank you. As a reminder, if you would like to ask a question today, please press start, followed by 1 on your telephone keypad now.

If you change your mind and would like to be removed from the queue, that's star followed by two. We'll just take a brief pause to allow the queue to fill.

The first question today comes from Michael Feniger with Bank of America. Please go ahead, Michael.

Thanks for taking my question. Troy, there's some concerns in the market with these headlines in D.C. I think a lot of the headlines are more on the defense budget, but can you just help us understand when we look at your exposure to public funding.

how locked in some of that funding is. Are you hearing any issues on the ground about that pipeline? It seems like the building could slow it all. Just curious if you could kind of comment on some of these headlines we're seeing and if we flesh that out, what the actual risks to your growth outlook there.

Okay, yeah, Michael, thanks for the question.

So I'm going to, that's a broad question, I'm going to take it in a few parts. First of all, in terms of the federal government.

There certainly is an ongoing debate about spending and debt ceiling.

And it's our perspective, first of all, that we think that our government will ultimately act rationally.

If we go back and look at history, it always does seem to turn out that way, that at the very least there have been some periods of time where the government has been impacted for a few days.

For us, we only have low single-digit exposure to the federal government, and that really has no material impact on our business in the short term.

And again, most importantly, those times the shutdowns are really irrelevant for the long-term performance of our business and the long-term investment cycle and infrastructure.

Again, I think the second part to that question is...

When we look at the, again, in the United States, the funding that has come into infrastructure has been building for a period of time and it certainly has been bipartisan and those funds for the most part have been appropriated.

So when we look forward, we really don't see there being significant risk.

So the money that's been set aside by the IJ or the other of your acts. So the long term we see that is not having an impact on the opportunity for a business in the US.

And then going a little bit even deeper than that, when we look at our state and local governments, state and local governments have very significant funding and we see the rainy day fund.

in state and local governments being at the highest level since I think going back to the 1980s.

And so, again, I think there's just really strong underpinning for the long-term investment.

that's been set aside for infrastructure and there certainly is demand for it.

And the last one I'll make just about our overall business, again, we're focusing on the US, but.

the trends that we're seeing are across our entire business. So they're global in nature and we certainly see again While they're always going to be blip in terms of the long-term opportunity We really don't see that being any significant risk to the long-term value of the business.

Thank you and try over the last.

12 months, many of some of your public peers have acquired other businesses. You stayed the course and are talking about some increasing windshare. So how do you view your organic approach versus the M&A approach as we think about capturing some of these bigger projects?

these growing bigger projects more scale as the funding levels start to really pick up and ramp up into 2024.

Thanks, Deb. Again, so Michael, our focus and our strategy has been built on taking advantage of the long-term opportunities.

And so again, we built a strategy around that and we're executing games that and then in terms of allocating capital group we had disciplined around our return profile.

And we look forward and set the highest returning opportunity to invest in organic growth. We still believe that and it is certainly paying off for us.

I'll expand upon that in a second, but it is paying off for us. Then we look at just the next best opportunity, it is certainly returning that capital to shareholders.

You know, maybe it changes over time, but as of today and as we look forward, investing in organic growth and return it to our shareholders is what we're focused on.

And when you contrast that to doing M&A, we just had a difficult time being comfortable that doing transactions at 15 times earnings in businesses that really have, you know.

organic growth opportunities that are in the mid single digits are certainly they can reach double digits at certain points in time. It's hard for that return on the capital being deployed at a 15 times transaction.

can make sense. And so again we're just we are governed by the disc one to make and share. We're providing the best return on capital.

So our strategy is built around that and we just certainly don't see that changing. And we look at the opportunities in the market that were robust and it's paying off. And we made reference to the fact that...

you know, the large wins that we're seeing in our portfolio of business has increased significantly. So now, almost 30% of our wins.

or over $25 million. And if we go back a number of years, that number was approximately 12, 13, 14%. And that holds really well. It both would great for us because those are long life projects. They give a great visibility in the future.

The other is they expand the relationship that you have with your customers.

And usually those long projects actually have the ability to expand. And statistically speaking, we see them expand fairly significantly. So by winning those long-term programs, you're not just winning what's in backlog. You're winning something over the long-term. It's a much higher number.

Our next question comes from Andy Whitman with Baird. Please go ahead.

Thanks for taking my questions guys.

You guys are guiding NSR growth of organic 8% for this year in the quarter, the first quarter you posted that and you've got the benefit of some of the stimulus things that you referred to and previously even said that you expected the year to accelerate as the year goes on. So...

Seems to me that the 8% could be conservative and I was wondering if that is the case or if there's an offset that's developed somewhere in your forecast or planning that we should know about.

Hey, Andy, this is Garval. I'll take that question.

There's no change in our outlook and the plan we had committed to in FY23. Look, we're early in the year and as you noted correctly, a little bit ahead of our expectations for Q1 and underlying bookings growth was...

very strong across our design business.

But similar, you know, what prior years have taught us is to be prudently conservative due to ever-changing macroeconomic conditions. But the management team will always be focused on delivering on its commitments.

got it thanks and maybe you reiterated the 2024 longer term which is not that longer term anymore guidance here today. In that you've said that 15% margins would be kind of the target and so I guess when I look at like <expletive> .

what's the most likely way that you get there? Is it by exceeding or well exceeding the 15% margin target or are you increasingly confident in the organic growth rate in the medium term?

Yeah, good question again. Thanks for that, Andy. So you're right. There's no change in what we have committed to, including when we spoke just two, three months back. In our FY24 outlook, we feel confident. In fact, as we sit here today, we're more confident than we were three months ago. And it's a dynamic model.

we expect to deliver on that 15% with the focus being to maximize that delivery as we move forward over the next, call it 21 months, 20 months into 2024. And these things are allowing us to overcome some things that are outside of our control like effects or interest as you said but even those

You know, this management team is focused on making sure we put the best foot forward on every single path that we can control. A great example of that is our balance sheet and how the strength of our balance sheet we've created over the last two years, where 80% of our debt is fixed that very favorable. And I want to really emphasize very favorable interest.

supports not only are 2024 model, but put for strong results we expect to deliver for years to come.

Okay, great. Thanks guys. Have a good day.

Yeah, thanks. Thank you.

The next question comes from Sabahat Khan with RBC Capital Markets. Please go ahead.

Thanks and good morning. Just a question on the earlier comments around still continuing to sort of ramp up hiring given the demand outlook. I guess how are you balancing that against maybe just some of the uncertainty in the backdrop or do you have enough visibility to support some of this hiring? And I know some of your peers kind of use

contract, engineers, and things like that, are you using some of those tools? Just try to understand how you're balancing your hiring needs with the evolving backdrop.

Yeah, I'm sorry. Thank you Troy

What kind of an unusual predicament?

in that we're focused on trying to continue to create capacity to keep up with the right wish for winning work.

And so, we're focused on hiring broadly across the business. And at the same time, we're focused on trying to increase the capacity of our entire professional team. And we're doing that by using digital tools to deploy them projects. And then we're also...

building and expanding our enterprise capability centers which allow us to actually create efficiencies and deliver some of our work.

And so at this point in time,

We don't, again, our focus... trusts

It's really on trying to increase the capacity to keep up with the rate at which we're winning work.

And then just the comments around the increased wind rates, particularly on larger projects. I was hoping maybe you could share some color around. Are these changes that you made to win these projects, are these structural things that you think could last sort of through the economic cycle, through the demand cycle? I mean, I think that sort of a

How do you sort of adjust your approach to bidding and things like that if the demand environment or the next 12 to 24 months maybe Moders just a little bit of color on you know the changes you've made and you know how sustainable you think some of those impacts are

Okay, yeah. So I guess I'm going to start by saying I think that they're highly sustainable.

We, again, focus in our strategy in trying to create competitive advantage. And I think we're seeing that pay off. And I get the pay off is, is...

You know, again, team backlog grow, but also seeing the composition of our backlog change in a meaningful way that creates much more long-term visibility. And therefore, opportunities for the people that are here. The other thing we've done is we've exposed ourselves to more of the client spend on projects. In the past, if you're a design business, you're exposed to certain components to spend on a project.

And so by building out an advisory in a program management business, and our program management business has now been growing at over 30% per year, it exposes us.

to much more of that client budget. And so again, that's sort of structural and things that we don't think will change. And then in terms of creating a competitive advantage, it really is built around investing in our teams, making sure that we provide the best technical solutions to our clients.

It is focused on bringing the best that we have around the globe to our clients and to our most important projects.

And it's our investment in building changes in how we deliver. And we refer to that as digital AECOM, but it really is delivering some different consulting services, some different external tools that are used by our clients. But importantly, it's focused on how we actually deliver that work differently and create efficiencies.

And I'm going to turn this over to Lara just to talk a little bit about what we are seeing in terms of the winning around the world. It's a great example of that competitive ancestry we are building.

Yes, Sabah. I mean, I think to answer your question, the technical academies is a great example of the difference and that point of differentiation. So, and another key element of our investment in our people and the return on investment that we're seeing with that. So, we...

We have invested in technical academies and we've got great uptake, uptake and engagement from all of our 50,000 employees in that, that is ongoing technical learning. And that's how we show up to interviews and it's a key differentiator in terms of our positioning. And anecdotally, we know that...

on nine out of the ten recent key enterprise critical wins that we've had, ACOM and top technical scores, which means that our technical prowess and capability is that key differentiator and a key reason why we're winning. So I think that's a very material.

point of differentiation for us at the moment and it's really paying off in terms of that investment in technical talent.

of differentiation for us at the moment and it's really paying off in terms of that investment in technical talent.

Thanks very much.

Thank you.

Our next question comes from Andy Cappelwitz with City Group. Please go ahead.

everyone.

Hi Andy. Hi Andy. The spectrum will accelerate a bit.

How are you doing? So book to bill accelerated bidding Q1 1.3 times. I think you mentioned the 30% increase in bids and proposals from last year. You obviously had a nice move and contracted back with as well. So just two questions. Can you maintain this kind of book to bill based on your increased proposals to the next few quarters in DC America's NSR growth.

based on current conditions continue rise from 6% or is it more that double digital international world that will carry you to the 8% growth of the year.

So, Andy, yes, the answer to your question is yes. I do see us being able to consider the high book to burn. Just again, given the fact that.

As Lara pointed out in our prepared comments, we're actually winning one out of every two dollars that we did. So our capture rate is at 50 percent. And frankly, it's been that way now for five quarters.

So, you know, you create a lot of confidence when you are winning the things that you define as really matter. Secondly is with our pipeline growing so significantly and the pipeline is in the US and around the world with that increased pipeline, yeah, we do think as we keep winning at this rate, we're going to keep building our backlog.

at the clip that we're seeing. So we do have confidence around that. And I'll take it to guard and answer your second question. India as we look forward.

what's really driving our confidence.

in the market, how we are prowess in the marketplace and how we're being successful is if you really look at it our strategy is Simple yet focused. We're focused on the nine key geographies that have significant funding macroeconomic tailwinds.

our people are some of the best professionals in the industry. We're investing significantly in ensuring that their brand, their technical brand continues to outpace competition in the marketplace, while at the same time looking at those key geographies and being very focused on return-based investments.

as Troy alluded to earlier, program management, advisory, the digital tools. So all this builds in both so well, not only sustaining what we have done, but to continue to take our competitive differentiating platform we have created into the future and capitalize on the funding that's going to continue to be available for us.

Could you update us on your construction management business? Are you growing backlog in that business? I know last quarter you mentioned some non-traditional developers were pulling out of the market, but your business was more than supported by aviation convention centers, other end markets. Are you able to adjust enjoy the data to be safe and good at what you're seeing?

Yeah, I think so we're seeing sort of the same thing happening. I mean, well, there certainly is some softness in residential and commercial markets.

and that businesses in the United States. We are still seeing a great pipeline of opportunities, in particular some large opportunities, and it is a more diversified portfolio of opportunities and it's focused around the same things. It's aviation, it is certainly sports and leisure, it's investment in convention centers and investments in cities.

for us to build upon.

And then again, I'll just say the last point about that business is even with some softness in the market and we do have, it is lumpy in terms of how wins work. Our book to burn was almost one in this quarter.

So, I think our C& business is exposed to some markets that's slower, but it's because of the exposure we've created to other market segments, it's in great shape.

Appreciate all color.

Thanks, Andy.

Our next question comes from Jamie Cook with Credit Suisse. Please go ahead Jamie.

Hi, good morning, Nice Clutter. I guess just two questions. One, Troy, understanding that your win rates are up and you have projects with longer duration which helps create visibility, can you talk to sort of the margin profile of the backlog today relative to...

where we were 12 months ago or 24 months ago as you are refocusing on higher profit type opportunities. And then my second question, just confidence level in getting the international margins to double digit, like what are the two or three things that need to happen from here in order to execute against that? Thank you.

Okay, thanks, Jamie. I'll take the first part of that question. I'll let Gar handle the second question. First of all, with respect to wind rates.

They've been, again, I'd say we're really pleased with those kind of high wind rates. Even in the larger projects, our wind rates are even higher than that.

In terms of the margin profile and what we're winning, the margin profile continues to get better, which again is part of giving us confidence in expanding margins as we move forward. If we go back a few years, the margins that currently exist in our backlog by comparison are up more than a few percentage points.

So again, part of the progress we're making on improving margins, which gives us the opportunity to continue to invest through our margins, is because the profile of the work that we're waiting comes with significantly higher margins than it did years ago.

And Jimmy, looking at the margins going to double digit, that is our focus. We're going to deliver double digit margins in 2024 and there's going to be various pieces, some of which we've already spoken about during the call. They go from making the right investments in our people, providing the right platform for them to be successful in the marketplace, while at the same time, we're going to be

being very rigorous in how we review our portfolio to make sure it meets our risk and return profile. Something you signed in the first quarter as we spoke in Q4. We exited parts of our Southeast Asia business because we knew on a long-term basis the risk in those businesses and the return available in the marketplace.

It's not consistent with what we want to expect and deliver for sustained shareholder value creation.

our expectations.

on the long term for the international business are not just to get to the double-digit margins. It is similar to what we have done in the US in our Americas business, is to be the leading path, on top of the path in terms of margin delivery. And that's going to be significantly driven by the growth, not only what we're seeing in the marketplace in our international.

part of the business and we have definitely taken market share across all of the key geographies that comprise our international business and we have confidence because infrastructure is one of those long term secular trends and we're winning more than we ever have before and they're a great example of the long term nature of some of those wins so whether it's be money in the fast fast as you would sayaman, fast as is the dollar we put in industrial

the key wins we talked about in ANZ, the very transformational long-term wins in the Middle East and particularly Saudi Arabia where we have a leading position in the market and then even in the UK where some might consider that a somewhat uncertain market that we had a very simple plan a few years ago to...

ensure we had a strong position on all the key infrastructure frameworks and we secured all those positions and we've had some great wins. So again, long term we have confidence around our margin improvement strategy and the strength of our business to capitalise on those infrastructure trends which are very long term.

Thank you. Great thank you. Thanks, Jamie.

The next question comes from Michael Dudes with VSCA Research. Please go ahead Michael.

Good morning, gentlemen and Lauer. Morning. Morning.

Sorry.

But Troy, you mentioned in your prepare marks, you've been very successful helping your state, local clients and others, I guess, in the whole ecosystem of IIA, et cetera, finding and captioning funds. Give me a little bit about the base business of just the typical block and tackling in your...

water municipality transportation highway work and then you know that acceleration and timing of acceleration for the federal funding and some of the projects that get left from there is that going to provide a Big uplift as we move into 24 and 25.

Mike, the answer to that is yes, and I think the long-term uplift goes beyond that.

If you think about how the IIJ funds or other funds from the investment, the federal investment offers bills have been put in place, that it was slow to start. And so we're starting to see the impact in the marketplace today, but we think we'll see the more significant impact of the funding from IIJ when matched with state and local funding.

in 24, but we see that going well through 26 and 27. In fact, what we're forecasting is the peak of that money being in the market in infrastructure projects is probably in 26 and 27, and again moves up to 28 and 29. But that's where we would see that peak. So we see those opportunities extending for quite a long period of time. And again,

I mean, the commonwealth and local governments, they again have, they're well funded, they have good rainy day funds, and they set aside funding for these large investments in infrastructure.

So again, I think this is an opportunity that will extend for a long period of time. We're lucky to take advantage of it.

Thank you, and to follow up, maybe get your thoughts on your exposure to new energy, renewable energy. How does the world go from being 2M to 4M?