Q2 2023 AECOM Earnings Call
Thank you for your patients that'd be one the E Com second quarter 2023 conference call will begin in one minute time.
Ben Please press star followed by one telephone keypad.
[music].
And welcome to the E Com second quarter 2023 conference call.
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But now what you're trying to cool I bet, you will debut escape senior Vice President Finance Treasury and Investor Relations.
Yeah.
Thank you operator, I would like to direct your attention to the Safe Harbor statement on page one of today's presentation.
The discussion contains forward looking statements about future business and financial expectations actual results may differ significantly from those projected in today's forward looking statements due to various risks and uncertainty.
Putting the risks described in our periodic reports filed with the SEC Exceptive.
Except as required by law, we undertake no obligation to update our forward looking statements, we use certain non-GAAP financial measures in our presentation. The appropriate GAAP reconciliations are incorporated into our materials, which are posted to our website any references the segment margins or segment adjusted operating margins will reflect our performance for the Americas and international segments, when discussing revenue and revenue growth, we will refer to <unk>.
Net service revenue or MSR.
Is defined as revenue excluding pass through revenue MSR and backlog growth rates are presented on a constant currency basis.
Otherwise noted beginning this quarter results for AECOM capital will be reported as non core and will be excluded from current and comparable prior period. Adjusted results. Today's remarks will focus on continuing operations, excluding AECOM capital on today's call Troy Rudd, Our Chief Executive Officer will review, our key accomplishments our strategy and our outlook for the business Laura Polonia our present.
<unk> will discuss the key operational successes and priorities and.
<unk> <unk>, our Chief Financial Officer will review, our financial performance and outlook in greater detail. We will conclude with a question and answer session with that I will turn the call over to Troy.
Thank you will and thank you all for joining us today.
The strength of our second quarter performance was underpinned by our competitive advantage, our technical leadership and our disciplined returns focused capital allocation policy.
Our leadership position was reaffirmed last month by <unk>, where we were again recognized as the top ranked transportation and facilities design firm.
We also continue to hold the number one rankings in environmental engineering and environmental Science.
These recognitions are well deserved and I would like to thank all of our people for a strong first half of the year and for building a company that reflects our shared purpose of delivering a better world.
Turning to our financial performance.
Our second quarter results were highlighted by 8% organic MSR growth in our design business continued margin expansion, a new quarterly high for adjusted EBITDA and strong EPS growth.
Importantly, our quarterly wins backlog and pipeline of opportunities hit record levels for.
Proposals and bids submitted continuing to accelerate at a very strong rate.
This is reflective of the competitive advantages we have created through investing in our teams expanding our addressable market and by focusing our time and capital on the highest returning to organic growth opportunities.
Our performance included a record quarter of wins and a one five book to burn ratio in the design business with strength across both the Americas and international segments.
Our win rates are well ahead of both internal benchmarks and historical performance.
We are winning more than half of every dollar we bid.
On large global bids in the first half of the year, we are winning at an even greater than 70% rate.
The success has transformed the composition of our backlog.
Today, 30% of wins are valued at greater than $25 million.
More than double what it was just a few years ago, when combined with our higher margins, we have substantial visibility and even greater confidence in delivering on our long term objectives.
Please turn to the next slide.
Key to our success is the realization of several elements of our strategy.
First collaboration we've instilled a culture of collaboration and technical excellence to ensure that we bring the best and brightest thinking to each and every pursuit.
Having a truly diverse set of experiences and ideas to solve some of the most challenging infrastructure problems has been a key competitive differentiator.
Second expanding our addressable market organic investments in advisory and program management have elevated our engagement with clients and extended our opportunities.
Third investing in our teams we have made substantial investments and benefits programs work life flexibility technical excellence and leadership development to enhance our employee value proposition.
As a result against a backdrop of rising demand and stagnant overall workforce growth voluntary attrition rates are substantially ahead of our internal targets and key benchmarks for professional services companies.
Fourth disciplined allocation of time and capital.
Our first dollar of capital goes towards the highest returning to organic growth opportunities.
This has resulted in a record high backlog and win rate and expanded earnings capacity of the business and we are confident that additional award decisions in the second half of the year, we will further expand our visibility.
Finally superior value creation after investing in organic growth, we deploy our strong cash flow to the next highest returning opportunities.
Which for us remains share repurchases and dividends.
As a result, we have returned more than one 6 billion of capital to shareholders. Since September 2020, and have repurchased more than 16% of shares outstanding at a highly attractive return.
Please turn to the next slide.
Yes.
Looking ahead, the three secular megatrends benefited our markets are accelerating.
These include continued investment in global infrastructure.
Sustainability, and resilience and long term supply chain and energy transitions.
As these recent wins indicate we are in a leading position to deliver as these trends gained momentum.
Let me share a few examples.
First in the areas of sustainability and resilience. We were recently selected to provide fast remedial investigation and feasibility studies for the U S Army National Guard. This.
This win drew on our environmental and water expertise multiple decades of PFS related client work and innovative solutions to address the long term management of PFS we.
We were also selected to deliver tactical and program management services for a large wastewater treatment program in California.
This win builds on several large water wins, we've had in the western United States over the past several quarters and reinforces our leading position ahead of accelerating investments to address long term water security.
Second we continue to demonstrate our leadership in energy transitions and de Carbonization most.
Most recently the office of clean energy and demonstrations for the U S Department of energy awarded US a contract that draws on the expertise of our environment and water teams and advancing competitive grants for new clean energy solutions under the <unk>.
In addition for the city of Rialto, we combined our sustainability and energy expertise to develop and design a comprehensive microgrid solution to enhance operational resiliency for the city's wastewater treatment plant.
We are now leading the implementation of this project, while also adding both the city and its water utility in procuring tax incentives available under the IHA and with you.
This project is also a great example of our expanded addressable market, where we are able to play a more meaningful role in our clients' success by engaging earlier and providing multiple professional services.
Finally, our World Class program management capabilities continued to create a competitive advantage as projects increase in size and complexity.
Several wins in the quarter, such as the sizeable, California water project that I mentioned, a moment ago and a large international Airport project are great representations of the power of combining our technical expertise with program management to create a higher value solutions for our clients.
As a result, MSR and the program management business has grown at a strong double digit annual pace over the last several years and we continue to see opportunities for growth ahead.
Taken together, we are executing exceptionally well on our key priorities.
I am pleased with the discipline of our leadership to continue to deliver organic growth.
Invest in building our backlog.
Invest in our people and expand our competitive advantage.
All while continuing to improve our margins.
With a robust growth outlook across our core markets, we remain confident in delivering superior long term value to our stakeholders.
With that I will turn the call over to Laura.
Thanks, Troy, Please turn to the next slide.
The strength of our teams remains our greatest asset and we are investing to extend our position as the best place to be able to Korea in our industry.
Staffing to meet rising demand remains a key challenge for our industry. However, we are encouraged that our employee satisfaction and retention are strong voluntary attrition is substantially ahead of industry benchmarks and our internal targets, particularly among high performance and from that we are delivering unrivaled technical solutions to our clients.
Importantly from these investments we are extending our competitive advantage at a time when growth across our markets is accelerating.
In the U S. II JA funding is beginning to Florida, including through new and existing Formula go ahead.
For instance in the second quarter, we were awarded a contract for a major bridge replacement project on a key railway line in the Eastern U S.
JA funding was a key contributor to the project advances.
Additionally, we are beginning to see positive indicators that funding for emerging contaminants clean energy solutions and logic competitive grants is gaining momentum, which we expect will benefit our backlog later this year and into next year.
Adding to this growing momentum as the overall health of our state and local clients with budgets remained strong as well as the anticipated benefits from the inflation reduction and Chip Act, which create additional demand drivers.
These initiatives will touch nearly every aspect of our business from environmental permitting and siting water transmission and distribution and offshore wind while there is funding pressure in certain commercial markets. We have repositioned our diverse business to focus on higher growth markets with public and private funding is more resilience.
In Canada, MSR backlog growth is strong and the federal government is executing on several infrastructure investments featured in its budget 2023. These investments are centered on transit and Green energy markets, where we bring unrivaled expertise and experience.
In fact today, we are part of teams delivering three quarters of the major transit projects currently underway.
<unk> Similarly strong in our international market in February the EU announced its green deal industrial plan with the goal of keeping pace with the U S and China in energy transition and achieving its net zero target.
These investments play to our strengths in.
In addition, ongoing investment to diversify the Saudi Arabian economy, combined with our leading presence on key programs are contributing to continued growth in the region.
And we have won nearly every key large transportation projects over the past year and a growing pipeline continues to support our expectation for further growth in this market.
With market demand accelerating we are focused on making investments to grow and extend the capacity of our workforce by leveraging the scale of our global capabilities as an advantage.
An example of this is how we are growing our enterprise capability centers.
Through these centers, we are able to tap into our global network of the industry's most talented technical expert.
And we are deploying leading digital solutions that create more efficient and consistent ways of delivering at scale.
The return on these investments is evident in the growth being supported by these centers and in our margins.
Today, we are operating from a position of strength.
We are making investments and bank deliberately consistent and focused on our approach as a result, we are delivering strong organic <unk> growth. Our backlog is growing at a faster right and our pipeline is growing at an even faster rate than that which is a great backdrop for continued momentum in the business.
With that I will now turn the call over to go.
Thanks, Laura Please turn to the next slide.
The strength of our second quarter and first half results reflected our highly profitable and high returning organic growth model and a focus on shareholder value creation, driven by our returns based capital allocation policy.
Against a very macro backdrop, we are executing against the factors we have in our control whether it be winning at a record pace for delivering a record margin for our second quarter, we are producing results.
This is clear in our strong MSR growth record design wins and backlog record adjusted EBITDA and double digit adjusted EPS growth. In addition, our segment adjusted operating margin increased by 60 basis points ahead of our expectations for 40 basis points of improvement for the full year and adjusted EBIT.
Increased by 14% on a constant currency basis.
I want to comment on our decision to explore strategic options for the AECOM capital business AECOM capital will continue to manage existing investments.
As part of this process over the next several years, we expect to realize cash inflow from these investments, which will complement our capital allocation policy.
Please turn to the next slide.
MSR growth in Americas was driven by 5% growth.
And the design business.
<unk> operating margin expanded by 100 basis points to 18, 7%, which set a new second quarter high.
This is even as we invest at an elevated rate and business development and in expanding our capacity to deliver our work against a strong demand backdrop.
Importantly, these investments in organic growth continued to produce results with our design backlog up 12% to an all time high including 10% growth in contracted backlog, which is also at record levels.
The success has translated to a one five book to burn ratio for design and are key leading indicators of growth.
Please turn to the next slide.
MSR growth in the International segment was 12% our book to burn ratio was one four in the quarter, which included strength across our markets.
As a result, our backlog and pipeline in each of our major geographies is at or near record high levels, which further our confidence in continued growth.
We also continue to make excellent progress on margin improvement initiatives with our international margins, increasing 30 basis points to eight 6%.
Improvement in our international margins has been a key driver of our enterprise wide margin expansion and improved profitability and we continue to expect to deliver a double digit margin for this business based on the efficiency initiatives we have underway.
Please turn to the next slide.
Our balance sheet is in great shape, we have no bond maturities until 2027 and the <unk>.
The majority of our debt is fixed or capped at highly attractive rates.
Free cash flow in the first half of the year was $63 million, which allowed us to return more than $120 million to shareholders through stock repurchases and dividends.
The inherent attributes of our professional services business that contribute to consistently strong free cash flow remain intact.
These advantages include a high quality client base highly variable cost model and record backlog and pipeline that affords us strong visibility to operate with certainty.
With the growth, we are delivering and the opportunities apparent in our markets. Our capital allocation priorities will remain focused on accelerating investments in organic growth and operational efficiencies followed by share repurchases and executing on double digit increases in our quarterly dividend program.
Please turn to the next slide.
Turning to our financial outlook, we affirmed our guidance for all key fiscal 2023 financial metrics highlighted by an expectation for 8% constant currency organic MSR growth and 10% constant currency adjusted EBITDA and EPS growth at the midpoint of their respective ranges.
Due to our operational outperformance in the first half of the year our guidance is consistent with our outlook from beginning of the year, Despite reporting AECOM capital as noncore and excluding from guidance.
We also continue to expect 40 basis points of margin expansion to our record annual high of 14, 6%.
Our ability to expand margins, while investing in our teams and delivering topline growth is a testament to the competitive advantage. We are creating we have also affirmed our free cash flow guidance for this year as well as our fiscal 2024 targets with that operator, we are ready for questions.
Thank you if you would like to ask a question. Please press star followed by one no telephone keypad to withdraw your question. Please press star followed by Jay.
Having to ask your question, Peter So youll find isn't muted lately.
And our first question today guys.
Capital markets Sean. Please go ahead your line is open.
Alright. Thank you thanks for taking my questions.
Just starting high level.
We've got elevated organic investments being highlighted elevated bid proposals earlier.
Elevated revenue growth and margin expansion I'm, just wondering how we should think about the sustainability of it.
Being able to continue to deliver to deliver on.
All of those metrics at the same time.
Great Good morning, Sean and thanks for the question.
So you actually were kind enough to point something out that I thought it was important that we actually talked about on the call which is this is this sustainable.
Staying the ability to do all of those things.
A lot of businesses when you're pursuing organic growth.
That trade off between organic growth and margins and this quarter again, we saw in.
An improvement in organic growth, we saw an improvement in our margins. We continued to invest in the business and people and that has paid off in.
Significantly growing backlog and in fact in that backlog.
One thing that we call out that you don't see in the numbers that the quality of the backlog continues to improve and when I say quality. It means that it's got better margins in it it's got longer term visibility in it.
And those larger projects that we win they usually come with significant change orders on top of that which is effectively like winning work without having bid costs.
And we've been doing that for the last three years, we've consistently been doing all of those things balancing that tradeoff and ending up with organic growth consistently over the last three years improving margins over the last three years to get to the top of our industry.
And continuing to grow our backlog and improve the quality of it and all of that time investing ultimately in the future of the business. So.
I will say, we're very proud of that based on history. We think we'll keep that going and what we think drives that is frankly, just the disciplined approach of the management team in how we continue to make investments and how we're always focused on the highest returning opportunities.
Alright helpful. Troy and then and then.
Of course, we're looking at this fiscal 'twenty four targets, obviously, it implies very healthy earnings growth acceleration.
Maybe specifically what gives you guys the confidence to be standing by that number at this point in the year.
Yes, sure I'll, let <unk> take that question.
Good morning, Sean.
I'm going to borrow something that Troy, just articulated which is we're confident because of the competitive edge platform as Troy articulated we have built to deliver not just quarter over quarter year over year, but into the long term.
And it's something you've heard me say before its a dynamic model right. It was built on three key underlying growth pillars, one is organic growth, which we're delivering better than what we had planned three years ago, our margins, which are a little ahead of what we had built into our plan again.
Our capital allocation policy, we've continued very disciplined and focused and we will continue to do so on repurchases. While at the same time, we have initiated our dividend program, which we expect and have grown by double digit every year into the long term. So everything that we have in our control we're over delivering.
Clearly there are some things that are not in our control FX and interest, but we're going to focus and continue to over deliver on what we do control and Thats why were very confident as we move forward that we have built a platform with the competitive edge that will continue to over deliver.
As we move forward.
And.
John I'll, just add one thing to that too as I mentioned. This again is the composition of our backlog. The fact that our design backlog grew at 12% as we can.
Consistently grown over the last three years.
Gives us great visibility in the future, but more importantly, as again the quality of that backlog.
If we look at the makeup of that backlog, 30% of our wins are now over $25 million and if you go back a number of years ago.
Wins over that size, we're about 12% and so that's a significant difference in the composition of the backlog and again as I said those types of larger opportunities and are very high win rate and made this in the prepared comments that on those large wins, while we consider enterprise critical pursuits, we're winning over 70% of that.
In the first half of the year. So it's really the nature of the quality of the backlog and the growth in the backlog that.
And that we build our confidence around the guard described.
Maybe just on that last point.
Are you trying to say that based on the composition of the wins, perhaps there's more visibility in the backlog then.
Normal.
I would say there is maybe not normal, but certainly more than the past absolutely.
Okay.
Okay. Thanks, guys I'll turn it over.
Thank you.
Thank you. The next question guys you Michael Feniger of Bank of America. Michael. Please go ahead. Your line is open.
Thanks for taking my question, just Troy on the infrastructure funding and some of the momentum you're seeing in areas.
Water transportation energy do you expect the funding to be higher in 'twenty four versus 23, and maybe even in 'twenty five 'twenty four just curious what you're seeing there on the pipeline.
In terms of what you are hearing on the momentum there.
Blending starting to trickle through.
Yes.
The answer is yes, we absolutely see.
Funding a building.
This year certainly year over year, and then as we move forward, we certainly see I'll say peak infrastructure funding in the U S. Certainly supported by <unk> and a number of other bills, we see that peak funding probably coming in 2007 again can't be too accurate with that but that's sort of our we'd see the peak funding is probably around the <unk>.
27 years, so again I think that there is a lot of funding lining up behind that but it also.
I also make the point that it's not just in the U S. The U S. Certainly, it's a great market and our largest.
We're seeing again.
<unk> building up around the world to be invest in infrastructure and it just gets to the funding that's necessary for again governments and private and private companies.
Two.
To take advantage of what are these mega trends and again, there's just a need for infrastructure. There certainly is a significant desire to invest in sustainability and resilience and.
In communities and that means in infrastructure.
And then there is these large long term transitions going on and the largest one that we see is around energy and I don't think the energy. The peak funding for energy is certainly going to be in 'twenty six 'twenty seven or 28, I think that you are talking about a multi decade investment trend around an energy transition around the world. So.
We just are lining up with some really great long term funding opportunities theres always going to be.
As always going to be pauses, along the way.
And that's sort of natural the way the world works, but in the long term that funding seems to be lining up to be focused on those sort of three investing those three mega trends.
And just on the other side.
Investors worry that you do have exposure to private on the private side.
There is a lot of discussion around commercial real estate and offices can you just kind of parse through your private exposure what do you see as more at risk what is more resilient type of work that you do for private customers. Just so we kind of get a sense of when we look at that Pie chart, but what is more cyclical if we see more slow.
Or tightening credit versus some other areas in your portfolio on the private side. Thank you.
Yes of I'm going to I'll get I'll pass it over to Laura yes. Thanks.
Mike.
Yeah.
Over the last three years in particular have been actually diversifying away from commercial office and pivoting away to markets with more stable funding. So a good example of that is utilizing the great skills that we have and are building engineering business and redeploying that into the opportunities in logistics freight distribution aviate.
<unk> and even water and energy utilities and the fact is we have.
The exposure of commercial real estate in our portfolio just over the last five years.
It certainly makes that point in terms of that being very deliberate and disciplined action that we took well ahead of time.
Thank you and just if I could squeeze one more in just the AECOM capital partisan.
I think.
I assumed you guys have done all the heavy lifting and then we saw that this decision are there still levers for you to poll as you guys have transformed this company as a professional services are there still countries to exit or areas that you would kind of deemphasize over others.
Interesting you have your exposure in commercial exposure commercial real estate, just sticking Athens AECOM capital decision or are there other things that we can kind of expect as you streamline the business further.
Yeah.
No.
Firstly I'm, just just talk a little bit about AECOM capital.
We recognized a long time ago that AECOM capital that was not core to our professional services business, but.
The reality is is that we had a number of commitments that were made sort of pre 2018.
And we had to make sure that we continue to deliver on the commitments that have been made on behalf of AECOM capital and so we've gotten to a point, where we're comfortable that we've delivered or are delivering on those commitments and so at that point in time, we made the decision that we should be evaluating the options for that team and so.
If you think about sort of the things that we've done over the last three years. This was something that we had anticipated, but we realized that again, sometimes you have to sort of have to be patient and work through things and we've done that with respect to AECOM capital. So.
And the important part about income capitalist as we do exit it we did have something in our guidance for it and so we have removed AECOM capital from our guidance and it just is a testament to the continued strength of our professional services business.
And adjusted guidance for that.
With respect to <unk>.
The things that we'll do across the business.
We are always looking at opportunities to continue to.
To invest in the business, but more importantly to make sure that we run it in a disciplined and efficient way at.
At this point.
Nothing that I'll call out that we're going to be doing but as always we are constantly looking for opportunities to make sure that our professional service business maintains as the highest margin business in our industry and one that continues to grow organically. So we'll continue to do that but there is nothing nothing to call out at this point that would be on our.
On our agenda.
Thank you.
Thanks.
Thank you. The next question Gucci, Jamie Cook of Credit Suisse. Jamie. Please go ahead. Your line is open.
Hi, Good morning, I guess my first question.
With half of the year sort of already behind US can you sort of talk to you.
Understand you didn't change your guide, but do you feel more comfortable with sort of.
High end or the low end or the levers to sort of get you. There and then sure I guess my other question I find it interesting is you are talking about pivoting to higher margin return businesses the margins in backlog are higher.
I'm wondering if you could just.
Drill down on that a little more if you want to quantify.
Where margins are in backlog relative to history or what parts of the businesses are seeing.
Higher margin opportunity. Thank you.
Yeah, sorry, I'll, let <unk> take the first part and I'll take the second part Jamie. Thank you for your question, Yeah, Hey, Jamie morning in regards to FY2023 youre right. Our business professional services has been strong and they have over delivered to the <unk>.
Troy just made earlier, even though we have removed AECOM capital from our guidance and put it into non core there is no change in the range that we have provided effectively.
It's factoring in the over performance of that business and the other thing I would say as we look forward to second half of the year is one thing last few years' hypothesis to be prudently conservative.
And we will continue to operate accordingly in FY2023 as well.
And Jami with respect to the margins that I described.
If we go went back about three years, we've actually seen the margins in our backlog.
Increase.
And sort of the 30% to 40% range.
So there's been a substantial improvement and I'll, just say that that trajectory.
Two to improve so we continue to see margin improvement it may not be at exactly that same rate, but we certainly see margin improvement as we go forward and again I think a really important part of the quality of the backlog as is the nature of the projects and the duration of the projects and the complexity of those projects because what we've learned in the past is that those are the.
One's that typically have more change in them as you go through those projects and they result in larger change orders and I said that actually contributes to margins in the future because it's effectively work that you win without having to incur the business development costs or the time and effort to go through a competitive process.
Again, we feel better as we start to change the quality of our backlog, which means margins improve over time.
Thank you.
Thanks, Jamie.
Thank you. The next question guys you Andy Kaplowitz of Citigroup. Please go ahead. Your line is open.
Hey, good morning, everyone.
Good morning, Andy.
Larry you continue to have strong growth in.
International markets low teens.
Maybe you can talk about the momentum in that in the overall markets.
And is it a function of just the larger program management wins really driving that growth and the sustainability of that growth as you go out over the next couple of years.
Yes, Andy Hi, good morning, I'm happy to take that as a start.
I think we have continued confidence in the particularly the infrastructure outlook sitting at the international business I think Troy mentioned earlier, there is a strong policy level commitment to infrastructure with the green deal industrial plant that the Canadian $20 billion of investment outside of the Americas.
And then in Australia, a decade long infrastructure outlook and Thats good.
Great example of that we've been winning every significant large infrastructure transportation policy over the past year, and we see that robust outlook continuing in Australia, and then when we turn to the middle East again, very strong double digit growth.
Around the <unk> projects.
Thank you.
Policy level and at the sort of outlook that we are projecting we see continued confidence and opportunity for improvement.
And sustaining that performance in the international segment of that business.
And now I'll, just add to that with respect to your question about program management program management, absolutely, it's contributing to our success to our win rates for larger programs and projects.
And certainly it has given us more at bats than we typically had in the past at those large long term program. So that's increasing.
The scope of the opportunities that we're pursuing but again also with the high win rate we're describing.
We're having great that great success across the board, including program management. So that was an important that was an important decision. We made a few years ago was to make sure that we focused on program management as well as design and advisory in terms of the capabilities of a professional services firm.
And so.
Good follow up would be margins in international are still in the mid <unk>. I mean, there are obviously a lot better than they used to be but maybe the backlog visibility to get to that double digit margin because I think you've said in the past.
Do you expect to be there next year as part of the 475. So do you have that visibility as we sit here today to do that.
Andy This is gone ill take that question.
Simple answer is absolutely we have the visibility to do that in full confidence to do it.
Again im going to borrow from what Troy said opening the call that confidence is built into this competitive edge platform. We built in when we talk specific to international I think it's also.
A key thing to remind everybody our results, which is the way we will always report its still includes FX headwind year over year. So if you factor that in we're delivering over 9% for the first half of the year, but irregardless again, whatever the headwinds are our job is to deliver to our commitments and including the headwind we're fully confident that.
We're going to deliver double digit starting next year, yeah, and Andy just to build on what gossip.
I mentioned the point earlier.
A 30% increase in projects with more than $25 million gives us a lot of longer term confidence in terms of the profile of the work and.
And I think just to comment about program management again they are.
Longer term multiyear programs and I think also in the U K I mean, we look at the very deliberate action a few years ago to get onto long term framework all of those.
T J can very deliberate actions I think give us confidence about the longer term outlook.
I appreciate the color guys.
Thanks, Andy.
Thank you. The next question. This is Steven Fisher of UBS. Steven. Please go ahead. Your line is open.
Thanks, Good morning.
So just on organic growth, it's been running at around.
Morning.
Organic growth has been running around 7% to 8% for a few quarters now you've been talking about a lot of the big project and very good win rates.
Ken organic growth breakout from this kind of seven to eight 9% from here and what would cause it to break out do you needed to break out in order to kind of hit your 2024 targets.
Thinking about semi get to double digit levels.
Yes, so Steve I guess the answer is we don't we don't need it to break out to do that.
Because again there is this constant trade off which is.
Growth.
<unk> margins.
And so as we look forward, we're going to constantly trying to find that right balance because.
Even with the work that you when you have to be selective it to take on work that is going to have the right margins because.
You can go out into the market and you can certainly find folks to work on it but if youre not disciplined about your cost structure to run the business you can find yourself, having having breakout growth, but not having breakout margins.
So we're trying to constantly just have that disciplined to find that right balance and how we're doing that and again as I said.
That's been a real focus of us.
Try not to trade off growth for margins, but to actually deliver both at the same time investing in the future of the business.
So.
I think we're on track with where we expect it to be.
Could we see that continued to improve its possible, but we're going to be focused on that trade off in making sure that we're finding the right balance to deliver on improving the profit.
At a rate that exceeds our growth rate.
Okay. That's helpful. And then just wanted to follow up on Michael <unk> question on private markets.
You mentioned the point about diversifying.
How variable are the trends within those private markets can you talk about.
The trends youre seeing in hospitals in stadiums.
Then that hunt business and just other buildings.
How 'bout varying around the world and your private markets.
Yes.
So Steve.
They are there is there are always markets that are going to be a little bit slower to slowing down and I think everyone. Rightly so was asking us about commercial office.
We certainly are seeing urban centers commercial office.
Slow.
Slow might actually be understating it in certain respects however.
We have been.
Repositioning our business for the last number of years to recognize that there are also trends certainly in facilities.
Are those same talents are needed and so there are a lot of places even within our other business lines, so within transportation and within water.
The talents of those people that had been focused on facilities or.
Or even in our construction management business, a diversified a way to deliver on those other kinds of projects. So for example in construction management, you've seen us have great success in aviation and we're also having great success.
In in a number of other called government types of building projects.
In cities. So there are certainly has ample opportunity and we described that buy our <unk> backlog actually the pipeline has actually been improving.
But certainly that the nature of it has been changing dramatically and.
And in terms of our again our buildings in places business program management and design capability.
Those people have been focused on doing other things by participating in public sector work or working on other private sector clients and again those trends, we are seeing and certainly.
The buildings industry is moving towards aviation.
It's moving towards residential sports and convention centers and public offices and then there is still a lot of work again in transportation of water that we're doing.
Great. Thanks Troy.
Yes, Thanks, Steve.
Thank you. The next question go to Michael Dudas Bascom Research Michael. Please go ahead. Your line is open.
Hey, good morning, gentlemen.
Hi, good morning morning.
So.
As you look in your organic investment as you can.
Can you invest while growing the top line and growing the margins what areas, whether it's markets regions or technologies are you looking to invest in today, that's going to benefit three to five years out.
Yes, so I don't.
So I don't think anything has changed from what we've been investing in.
I think it's just a matter of us continuing to invest in and as we as we make those investments you sort of.
What you've done becomes building blocks for the future.
So first of all it's investing in our people and teams the base of the business is just having the best people in the industry and investing in those people and their development, whether its leadership, our tactical development and that won't change.
Next is actually looking at what we need to deliver our work more efficiently.
And we do that in different ways by investing in enterprise capability centers, but also investing in the tools and we keep talking about this as digital tools, but it's really using the tools that are available and that we're investing in are creating to drive efficiency in the business and that just means creating more capacity for the existing <unk>.
Professionals that we have to do other things that we believe are our more high value and then the next trend that I think builds off that platform that you have to have the standardization of how you deliver across each of your business lines.
The next wave will be in artificial intelligence and there is no question, we've been doing that for the last year investing in it and using it in certain ways across our business and that certainly is going to accelerate as we go forward because thats something that if you've put into the underlying building blocks in place.
It gives you a platform upon which you can actually use technology to again too.
Create capacity for what your people are doing but most importantly, when you create the capacity it creates time for them to do things that are more value for their customers and so those are the things that will can we have been investing in and we will continue to invest in.
I appreciate that thanks.
Thanks, Mike.
Thank you the next question.
Davis. Please go ahead your line is open.
Hey, good morning, guys.
Hey, can you frame piece as opportunity for us how big are those projects.
Okay.
Yes, I'm happy to take that Adam.
It's certainly been a lot of momentum in the perfect example of the.
Funding available for emerging contaminants, such as Pacer, we see that as a $10 billion.
Opportunity we already.
We're already the industry later has been working in the <unk> for the past 20 years, we think that our solution.
Solutions as strong technical capability will position us very well and we continue to see great momentum and we've had some good wins not just in the U S.
Outside of the U S for both public and private sector clients. So it's definitely particularly once the minimum containment levels.
Ratified we should start to see some real momentum in the peso space, particularly the NIH funding, but it's definitely a private sector opportunities as well around the world.
And just one thing to add to that is I think there might be a catalyst in the near future that will kind of sort of sparked PFS activity.
Because the.
The EPA announced some new drinking water regulations around PFS and so they're going through the process. The rulemaking process of review and so when those regulations to become final, which we expect sometime this year do you think that that will actually create a catalyst for more PFS activities. Like I said there is certainly is the funding in place but.
We think that would be again at an event catalyst for activity.
Great. Okay. Thanks for that and then.
I wanted to ask about the debt ceiling.
You've got better Washington contacts and me and the <unk>.
Question I'm getting is is infrastructure funding locked in or is there some kind of a risk around federal infrastructure support here.
Well.
I guess first off I'll, just make the comment that we probably have the same visibility that everybody has.
But I think we hope that we have to say we have we have a hopeful sense of optimism that.
Sensible leaders negotiate we expect that that will happen.
We'll get a successful outcome.
We'll set of this will pass us by but.
Even with the uncertainty the short answer NIH funding is.
Is that its very its procedurally difficult.
And just politically impractical to claw back that funding.
So we don't we just we don't see that that being at risk.
Again, the other the other important part of this is that.
A lot of the funding.
The appropriations remain are designated as emergency funding, which means that ultimately savings an emergency funding don't count towards your debt ceiling. So.
I think again Theres just.
Procedurally in the practically difficult.
Difficulties associated with peeling back or change in <unk> funding and then again, we still there is bipartisan support and recognition that it is a place that we need to be investing certainly here in the U S.
Okay. Good color. Thank you.
Great. Thanks, Ed.
Thank you we have no further questions I will now hand back to Troy to any tightening comments.
Great again, thank you everybody for joining us today.
And thanks again for our teams delivering a great quarter and we look forward to kits connecting with you next the next quarter have a good day.
Yes.
Thank you. This now concludes today's call. Thank you so much for joining you may now disconnect.
[music].
Okay.