Q1 2025 AECOM Earnings Call
Speaker Change: Good morning and welcome to the AECOM first quarter 2025 conference call. I would like to inform all participants that this call is being recorded at the request of AECOM.
Speaker Change: Dave's remarks will focus on continuing operations on today's call Troy Rudd, Our Chief Executive Officer, who will review our key accomplishments our strategy and our outlook for the business Laura Polonia, our president will discuss key operational successes and priorities and garner support our chief financial and operations Officer will review, our financial performance and outlook in greater detail we will.
Speaker Change: Conclude with a question and answer session with that I will now turn the call over to Troy right.
Speaker Change: Thank you will and thank you everyone for joining us today, we'd like to start by acknowledging the devastation caused by the fires in southern California. We are relieved to report that all of our employees in the region are safe. However.
Speaker Change: However, we recognize that the community will face significant challenges during what is anticipated to be a prolonged recovery period, we are committed to providing direct support to our teams and the affected areas in the L. A metro region as the rebuilding process gets underway are highly skilled teams are well equipped to assist our clients with the recut.
Speaker Change: Reconstruction efforts throughout the region.
Speaker Change: We pride ourselves on having the best workplace culture in the industry.
Speaker Change: I am pleased to report our efforts are paying off last week, we were named for the 11th consecutive year on Fortune's world's most admired companies list, including being featured as the number one ranked company in our industry.
Speaker Change: In addition employee engagement reached a new all time high and our recent firm wide survey, which is directly linked to employee satisfaction and the results and strong employee retention.
Speaker Change: Before we discuss our first quarter performance I would like to share some insights regarding our end markets and client exposure, which underscore our confidence in fiscal 2025 and beyond.
Speaker Change: First and foremost our business is highly diverse eliminating reliance on any single market or client.
Speaker Change: As we detailed last quarter, the EPA and USA I D. Together account for only 50 basis points of our trailing 12 months revenue.
Speaker Change: Select a similar proportion of our pipeline and backlog.
Speaker Change: Notably the inflation reduction act is not material to us.
Speaker Change: The majority of our U S federal engagements revolved around a central and mission critical services for the Department of Defense, where we anticipate strong funding growth in the coming years.
Speaker Change: Consequently, we expect any disruptions stemming from the temporary freezes or 90 day reviews to be negligible and short term.
Speaker Change: Sentiment reflected in our increased financial guidance for fiscal 2025.
Speaker Change: Looking ahead, we anticipate opportunities arising from the new administration's commitment to a robust economy supported by prudent deregulation and a push for energy independence that positions. The U S is an attractive destination for capital investment and growth.
Speaker Change: World Class infrastructure is at the heart of these objectives.
Speaker Change: Turning to our first quarter performance.
Speaker Change: And as our increased by five 5%, which was slightly ahead of our expectations.
Speaker Change: Growth was strongest in our largest and most profitable segment, the Americas, where MSR increased by 9% in the design business.
Speaker Change: The segment adjusted operating margin increased by 40 basis points exceeding our annual guidance for 30 basis point increase our consistently strong and industry, leading margins enhance our competitive advantage.
Speaker Change: Allowing us to invest in business development and growth initiatives, including in our water and environment Advisory and disaster response practices.
Speaker Change: Adjusted EBITDA rose by 8%, while adjusted EPS increased by 25%.
Speaker Change: The year over year growth in EPS benefited from a lower tax rate compared to the prior year.
Speaker Change: When adjusting for this variance EPS increased by 14%.
Speaker Change: It's important to note that the lower first quarter tax rate was due to the timing of items that were contemplated in our initial tax rate guidance, which is unchanged at approximately 24%.
Speaker Change: We also had strong cash flow free cash flow increased by 28%.
Speaker Change: And we returned $55 million to shareholders through repurchases and dividends.
Speaker Change: Turning to our backlog and pipeline.
Speaker Change: Backlog in the design business increased by 5%, including 7% growth in the Americas.
Speaker Change: As a result total backlog achieved a new all time high.
Speaker Change: Importantly, our pipeline is also at a record and included double digit growth in later stages pursuits, as we remain on a multiyear growth cycle.
Speaker Change: To reiterate we have less than 1% exposure in our pipeline to the areas expected to be under the most budget pressure, including EPA in the USA.
Speaker Change: As our consistently strong performance demonstrates we have created a competitive advantage, which is apparent in several ways.
Speaker Change: First.
Speaker Change: We are winning at a record rate and gaining market share in.
Speaker Change: In fact, we had a 100% win rate in our largest and most strategic pursuits in the first quarter.
Speaker Change: This consistently high success rate reflects our technical expertise and scale as evidenced by our number one rankings by Anr in water environment transportation and facilities markets and the deliberate approach, we bring to each client and pursuit to create an advantage.
Speaker Change: Second we are expanding our addressable market with highly complementary professional services that build on our existing technical expertise and creating even greater value proposition for our clients the.
Speaker Change: The substantial growth over the past several years and our program management business is a great example of the opportunity.
Speaker Change: Today, we are investing in our next $1 billion MSR platform.
Speaker Change: Water and environment Advisory, which has similar characteristics to program management with growing client demand for added services that leverage our domain expertise. This business generates approximately $200 million annually and net revenue and we expect to double that in the next three years.
Speaker Change: Third our margins continue to lead our industry and we're committed to further expansion of.
Speaker Change: Our strong margins are the direct result of the technical value, we deliver to our clients as well as our global delivery and scale advantages.
Speaker Change: This profitability creates the capital to invest in AI digital delivery and our greater higher margin advisory capabilities.
Speaker Change: We remain confident in delivering a 17% margin exiting fiscal 2026.
Speaker Change: In achieving meaningfully higher margins over time.
Speaker Change: Finally, our returns based capital allocation policy is a key driver of shareholder value creation and compounds the benefits of our strong operating performance.
Speaker Change: Reallocate time and capital to the highest returning opportunities and Richard substantially all available remaining cash flow to shareholders.
We have nearly $1 billion remaining under our existing share repurchase authorization and have grown our dividend at a 20% CAGR over the past three years.
Speaker Change: Which leads our industry by several multiples.
Speaker Change: Turning to review of our end markets.
Speaker Change: The growth drivers of investment in infrastructure sustainability resilience and energy are gaining momentum.
Speaker Change: In the U S. Our largest market. These drivers are apparent in the priorities of the Trump administration, including declaring a national energy emergency and creating incentives to attract capital investment to the U S.
Speaker Change: This includes the potential for permanent reform, which we have long supported as a means of accelerating project timelines and reducing costly delays.
Speaker Change: And in turn will attract more capital to the industry.
Speaker Change: Across our international markets long term trends remain favorable.
Speaker Change: In the U K.
Speaker Change: Final determination of the multi year amp eight water investment period came in higher than expected at more than 100 billion pounds.
Speaker Change: We won 100% of our re competes.
Speaker Change: Well as positions on several new frameworks that position us to expand our market share.
Speaker Change: Additionally, investments in energy and electric transmission infrastructure remains strong.
Speaker Change: Our positions on key transportation frameworks create additional visibility.
Speaker Change: In the Middle East growth continues to be strong supported by key priority investments in Saudi Arabia, as well as growth in the UAE importantly investments to support upcoming global events, such as the World Cup and Expo 2030 <unk>.
Speaker Change: Continue to create new opportunities for which we are ideally suited.
Speaker Change: More broadly against a backdrop of change the inherent attributes of our professional services business position us for continued success.
Speaker Change: First our backlog and pipeline of opportunities are at a record level, creating strong visibility and certainty.
Speaker Change: Second we are expanding our addressable market.
Speaker Change: Third we have a highly variable cost model.
Speaker Change: Fourth we have an agile workforce more than 70% of our professionals can work across disciplines, which allows us to quickly pivoted resources to the highest growth opportunities.
Speaker Change: Finally, we have a strong balance sheet with low leverage and strong cash flow, which gives us the ability to be opportunistic and operate with certainty.
Speaker Change: Our confidence is underscored in our increased guidance for fiscal 2025, and which we expect another year of record revenue margins and earnings with continued strong free cash flow conversion.
Laura Polonia: With that I'll turn the call over to Laura.
Laura Polonia: Thanks, Troy, we are off to a strong start to the year, reflecting the benefits of asking enact globally strategy and technical advantage, which is cited as the key reason we are selected on more than 90% so that largest wins.
Laura Polonia: As we navigate our markets, let me say that project size and complexity continue to rise presenting challenges for our clients, but also has significant growth opportunities for us.
Laura Polonia: To capitalize on these opportunities we have expanded our high margin professional services, including the rapid growth of our program management capabilities over the last several years.
Laura Polonia: I'm pleased to report that our program management business has increased threefold in the past four years and now accounts for 15% of our total revenue in fact, one of our largest wins in the quarter was for a program management award to support the Toronto Pearson International Airport capital improvement program.
Laura Polonia: Our success resulted from an early advisory while helping the clients with environmental Master planning, which further informed a deeper understanding of the clients' needs for the larger program management opportunity.
Laura Polonia: This project draws on elements of all four of our major business lines, which further cemented our advantage by being able to bring multifaceted expertise to the client. This project is a great example of the competitive advantage we have built in the market.
Laura Polonia: Looking ahead, we are actively investing in what we anticipate will become our next $1 billion growth platform through our water and environment Advisory business.
Laura Polonia: Similar to program management. This advisory service complements our established technical strength and addresses the growing client demand for infrastructure informed advisory services.
Laura Polonia: I am pleased to report that the <unk>.
Laura Polonia: Water and environment Advisory business has already reached several key milestones.
Laura Polonia: Last quarter, we appointed a Lady Joe Hudkins, who brings a wealth of experience and expertise to E. Com over the past few months, we have made several senior hires that further enhance our credibility in this space.
Laura Polonia: Key wins, and we are pursuing a robust pipeline of opportunities.
Laura Polonia: Feedback has been overwhelmingly positive emphasizing the unique value of our technical expertise adds to the advisory space.
Laura Polonia: In recent months, we have further evaluated the market opportunity and are increasingly confident in the growth potential of the underserved white space.
Laura Polonia: And the market.
Laura Polonia: Last quarter, we highlighted the significant opportunity in the $70 billion digital water market as clients seek our guidance and expertise to the digital and automation investments.
Laura Polonia: This quarter I want to highlight the opportunity in the non revenue water market, which refers towards it that is unaccounted for and gummies unpaid.
Laura Polonia: Annually the amount of water loss is equivalent to the total usage of Germany, France, Spain, Italy, and the UK combined which S&P estimates cost our clients nearly $200 billion annually in lost revenue.
Laura Polonia: This growing challenge positions us well to provide higher and advisory services recently, we were selected by a major U S will decline for a significant advanced metering project.
Laura Polonia: The age and declining accuracy of existing measuring infrastructure investing in more advanced metering technology has become a priority for our water clients. As a result, we have already developed a substantial pipeline in this market and are excited about the promising growth potential that lies ahead.
Laura Polonia: Overtime, we expect program management and advisory services to represent at least 50% of our business.
Laura Polonia: As evidenced by our early successes and expanding pipeline, we are more confident than ever about the opportunities that await us.
Guy: With that I will turn the call over to Guy.
Guy: Thanks, Laura I am pleased to report strong results to start the year.
Guy: <unk> increased by five 5% adjusted EBITDA increased by 8% and adjusted EPS increased by 25%.
Speaker Change: As Troy noted our EPS was up 14% after adjusting for the year over year variance and the tax rate.
Speaker Change: Our results included strong performance on margins and cash flow, which enabled investment in organic growth as well as ongoing returns to shareholders through repurchases and dividends.
Speaker Change: Our book to burn ratio in the design business was one two.
Speaker Change: This marks the 17th consecutive quarter in which our enterprise wide book to burn ratio was greater than one which is a testament to our industrial leading technical expertise strong client relationships and highly effective business development investments.
Speaker Change: It is because of high returns we realized on our investments that we are delivering today and why we are so confident in achieving both our near and long term financial targets.
Speaker Change: Turning to our segment results beginning in the Americas.
Speaker Change: MSR growth accelerated to 8%, including 9% in the design business.
Speaker Change: <unk> was broad based by client type and market. We are benefiting from strong <unk> funding, which remains less than 35% deployed with several years of remaining visibility.
Speaker Change: State and local trends are also strong and we had double digit growth in the quarter and we expect continued growth in our large multiyear critical federal programs.
Speaker Change: The adjusted operating margin increased by 40 basis points to 18, 7%, a new first quarter high.
Speaker Change: This margin includes the benefit of high returning organic growth and included substantial investments and business development as well as key hires as we expand our higher margin advisory services.
Speaker Change: Importantly, we not only grew at an accelerating pace, but we continue to grow our backlog as well.
Speaker Change: Our Americas design backlog increased by 7% driven by a one two book to burn ratio.
Speaker Change: Our book to burn was driven by sizable transportation wins in the U S and Canada as well as positive contributions across our water environment and facilities practices.
Speaker Change: In the international segment revenue increased although it varied across different markets.
Speaker Change: Our largest market the U K was up slightly benefiting from the stability afforded by our diverse backlog strong positions on key frameworks and our focus on growth sectors, such as water and energy.
Speaker Change: In the near term certain markets like transportation remained slower however, the UK business had a one four book to burn in the quarter, which supports our expectation for improving trends as we move through the year.
Speaker Change: Revenue in the Middle East increased in the high single digits with work on our Mega projects, continuing and new investments wrapping up in Saudi Arabia and the UAE.
Speaker Change: International growth was partially offset by a revenue decline in Australia, even so backlog in Australia increased by 9% and our wins in the water sector were strong.
Speaker Change: International backlog remains at an all time high including a one two book to burn ratio in the first quarter.
Speaker Change: Adjusted operating margin increased by 20 basis points to 10, 8% also a new high for the first quarter.
Speaker Change: Turning to cash flow and capital allocation, we executed on our returns focused capital allocation policy during the quarter in.
Speaker Change: In total we returned 55 million through share repurchases and dividends supported by our strong first quarter cash flow and balance sheet.
Speaker Change: As a reminder, our cash flow trends to be weighted to the second half of the year and our strong start to the year gives us confidence in our 100% free cash flow conversion guidance.
Speaker Change: Our capital allocation priorities are unchanged.
Speaker Change: We will maximize opportunities to invest in high returning organic growth and return substantially all available cash to shareholders over time.
Speaker Change: Turning to guidance.
Speaker Change: We are increasing the midpoint of our guidance for fiscal 2025 for both adjusted EBITDA and EPS.
Speaker Change: This guidance includes our strong year to date performance record backlog and pipeline and strong funding across majority of our markets, which is balanced against a headwind from foreign exchange rates that have moved against us so far this year.
Speaker Change: Our full year, 24% tax guidance is unchanged as the outperformance in the first quarter was driven by timing of items only we.
Speaker Change: We expect our tax rate to approximate 25% in the second quarter and to be in the high <unk> in the second half of the year. We continue to expect our tax rate to approximate 24% over the next several years.
Speaker Change: With that operator, we are ready for questions.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: Your first question comes from the line of Michael Feniger from Bank of America. Your line is open.
Michael Feniger: Hey, everyone. Thanks for taking my my question Troy.
Michael Feniger: Troy just to talk Big picture you guys are starting the year off MSR growth of five 5% positive start.
Michael Feniger: Feels like there's good visibility with the pipeline do you still expect that that growth to build through the year is that more Americans driven or is it really international starting to come back in the back half and just secondly, Troy. There's obviously a lot of headlines out there on funding freezes for certain programs and packages or <unk>.
Michael Feniger: Agencies.
Are your peers that maybe a different exposure.
Michael Feniger: I've had to highlight that there is even if it's in the headlines around some I a J and I are a projects I realize the iras not your wheelhouse, but can you just kind of talk broadly what you guys are observing in recent weeks. What you are hearing on the ground that kind of gives you visibility into that project pipeline, how that growth is building, even as we kind of come across them.
Michael Feniger: Headlines from from week to week. Thank you.
Mike: Alright, Thanks for the question Mike.
Michael Feniger: I'm going to I'm going to take them in reverse order.
Michael Feniger: First just sort of starting with with what we're seeing in the marketplace.
Michael Feniger: I'm going to start by saying over the last two weeks there are certainly hasn't been a lot to digest.
Michael Feniger: But.
<unk> been going through that process over the last two weeks what we've found is that there just.
Michael Feniger: Isn't a material impact at all on.
Michael Feniger: In our business.
Speaker Change: And I think it's attributed to a few things first of all as you already pointed out.
Speaker Change: We know where there is risk of significant funding change for some of our clients that the federal government level and we're just not exposed to that.
Speaker Change: But when you look broadly at costs across our portfolio again I think the Best example of this is we see our backlog growing.
Speaker Change: And importantly, we still consume continue to see our pipeline grow and as we said our pipeline across the world was up.
Year over year for the quarter.
Speaker Change: So well again, you sort of look forward and you say.
Speaker Change: There is probably going to be more to digest over the coming weeks and certainly months.
Speaker Change: But I think when you sort of step back and look at the sort of the macro impact and where we play.
Speaker Change: That.
Speaker Change: We're aligned with really again kind of what are the global objectives around infrastructure are and Theres still are these really important trends there still are investments being made in infrastructure and in the U S. If you look at the <unk>.
Speaker Change: Current administration's goals Theyre looking at economic development in the United States and if your agenda is economic development along center in the United States that means that it is going to be supported by infrastructure.
Speaker Change: Whether that's energy infrastructure water infrastructure transportation infrastructure for you.
Speaker Change: You get you get your goods two markets domestically and internationally.
Speaker Change: And then all of the work that would be done if there is permitting environmental permitting reform there.
Speaker Change: It really is going to be more work done because that should accelerate projects.
Speaker Change: So we look broadly in the U S and we see that we're aligned with the objectives around infrastructure and globally.
Speaker Change: We do see the same thing, although we see something similar in certain markets.
Speaker Change: Were they certainly are governments that have been switching their agendas and so.
Speaker Change: It has impacted us and we think in the first half of the year.
Speaker Change: So let me turn to your question just about MSR growth and we don't see anything changing.
Speaker Change: Had we had expected that our in store growth.
Speaker Change: I would be.
Speaker Change: Not quite as good as it was in the first quarter, we did a little better than we expected.
Speaker Change: But we do expect it to ramp up in the second half of the year and that's a function of the opportunities that we have in our pipeline and also the things that we've won in backlog.
Speaker Change: Again, I think if you sort of look at our backlog and our ability to to address the opportunities of the marketplace. We have a very high win rate.
Speaker Change: And we've been mentioned too is that for our <unk>.
Speaker Change: Our significant pursuits, as we define them or pursuits that are over $50 million in size, We said we had 100%.
Speaker Change: I will just point out that is not one for one in the quarter that was eight for eight and so that's a pretty significant example of.
Speaker Change: Of how we're winning in the marketplace.
Speaker Change: Your next question comes from the line of Andrew Kaplowitz from Citigroup. Your line is open.
Andrew Kaplowitz: Hey, good morning, everyone.
Speaker Change: Good morning.
Speaker Change: Troy just looking at Americas Gorilla, some MSR actually accelerated a little bit in the quarter design backlogs. Good. Obviously, you just talked about and I know, there's a lot of cross currents out there. So what would you expect to drive year growth in FY 'twenty five is it more weighted to state and local revenue growth versus private sector.
Speaker Change: Is it more equally balanced.
Speaker Change: Would you say, it's more water related or is it kind of balanced between water transportation facilities like how do you how do we think about it.
Speaker Change: Yeah think about it in terms of just being balanced.
Speaker Change: <unk>.
Speaker Change: We build the business in a certain way so that's aligned against what we think is important for.
Speaker Change: Longer term investments in infrastructure now kind of every every every part of our marketplaces slightly different objectives and so we might look at certain markets. For example, like the UK and we say that what used to be transportation focused is now going to be more water and energy focused.
Speaker Change: But when we look across the entire business.
Speaker Change: We are exposed to trends across the business that would imply that we're just we're just going to see success across transportation water environment energy and in our buildings business.
Speaker Change: Very broad based.
Speaker Change: Helpful. And then I know you've already talked about you know eliminate exposure to federal budgets.
Speaker Change: But given sort of all the noise should we expect a period of slower bookings.
Speaker Change: That side of the business or would you do you worry that the uncertainty could drift in state local.
Or would you still expect an average book to bill at or above one over the rest of the year.
Speaker Change: Well based on our pipeline based on our win rate, we would expect it to be over one throw out throughout the year.
Speaker Change: And.
Speaker Change: As you sort of look at again, we look at our pipeline and we certainly do see as you move through the year there.
Speaker Change: There are opportunities that actually improve over the course of the year. So.
Speaker Change: We don't anticipate our pipeline of opportunities shrinking, we actually view it as expanding over the course of the year.
Speaker Change: Helpful. Thanks Troy.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Jamie Cook from <unk> Securities. Your line is open.
Jamie Cook: Hi, good morning, and congrats on a nice quarter I guess my first question can you just talk maybe talk about some of the investments that you're making this year in order to continue to ignite organic growth organically in particular.
Speaker Change: In the water.
Jamie Cook: In the environmental business and sort of compare that to.
Jamie Cook: Sort of compare that to last year.
Jamie Cook: And then I guess my second question.
Jamie Cook:
Jamie Cook: And on the international side it sounded like there were some positives in terms of the book to bills turning why.
Jamie Cook: As we exit the year, how do you think about sort of.
Jamie Cook: International design backlog growth for the year. Thank you.
Jamie Cook: Thanks, Jamie it's Laurie I'd like to start with just responding to the first part of the question around water and environment and foundry and.
Speaker Change: The update is about 100 days and we've got great momentum. We're running ahead of some of the key milestones that we expected in terms of winning.
Speaker Change: Good solid backlog, a growing pipeline of opportunities, but most importantly with had great success in great talent joining the team most recently in the digital water and disaster recovery disciplines and those.
Speaker Change: Those team members it straight to work.
Speaker Change: And we're still quite optimistic this tremendous white space and Adjacencies for us in this sector, where as you know we already have the market leading position in water and environment.
Speaker Change: Across our operations.
Speaker Change: A lot more addressable market for us to attack in terms of order and environment and then the client response has been very positive.
Speaker Change: And as I said, we've had some great wins in the quarter. We had a large for example events made around infrastructure projects.
Speaker Change: We still believe that that's the next big catalyst of high margin growth accelerated for us that builds on that technical advantage that we have and then I'll just make some comments about international and some of the bookings and what we're seeing across that market.
Speaker Change: It was patchy, but it was basically in line with expectation but.
Speaker Change: I think Detroit that early as we had growth in backlog across the portfolio. So international as well as Americas, We did say middle East leading away grew 7% for the quarter.
Speaker Change: One one book to ban U K for us continues to be strong.
Speaker Change: I mean, we are capitalizing on those long term frameworks that we have.
Speaker Change: And most importantly, we are looking forward to and tight as we know <unk>.
Speaker Change: <unk> of the total dollar addressable market that's going to exist.
Speaker Change: And seven as Troy said Wei.
Speaker Change: <unk> kept at 100% of all of the re competes on <unk>. So a lot of positivity around that debt and also as you said the wins continue into position continue across all the sectors in that came market side.
Speaker Change: I think overall, a positive and shows that we're not dependent on any set of single geographic market and that we have that the fungibility of workforce to work across our various operations.
Speaker Change: Thank you.
Speaker Change: Thanks.
Speaker Change: Our next question comes from the line of Adam <unk> from Goldman Sachs. Your line is open.
Adam: Hi, good morning.
Speaker Change: Good morning, like really strong momentum in program management can you just update us on your outlook for growth in that business line. This year and what are the levers being pulled to continue to drive capacity for sustained growth in the medium term in that business.
Speaker Change: Yeah. So first of all our outlook for program management remains unchanged from the level of success that we have.
Speaker Change: Yes.
Speaker Change: So to think about again I'm going to start by taking you back to what.
Speaker Change: What we said at our Investor Day last year, which is we set out an objective. So it ultimately 50% of our business will be kind of in our design and our science based businesses.
Speaker Change: And with an expertise, we're expanding into program management and into advisory.
Speaker Change: At this moment, we now have I think during the quarter about 16% of our MSR came from program management work, which is up significantly and is growing again at a double digit rate.
Speaker Change: We expect to continue to grow at a double digit rate, but importantly, as we are now building out the advisory practice.
Speaker Change: We're heading towards that 50, 50 split and the reason that becomes important for us is.
Speaker Change: We're exposing ourselves to significantly more of our clients' budgets.
Speaker Change: So sort of if you again think about the confidence that we are describing in the business and our successes.
Speaker Change: We've got it.
Speaker Change: We exposed to the right what we think are the right diverse marketplaces.
Speaker Change: We believe that we're being exposed to much greater degree of influence that our clients and their spend.
Speaker Change: Our design, our program management and advisory business.
Speaker Change: And then we're experiencing really a very high win rate.
Speaker Change: So we've been doing that now for a few years that extraordinarily high win rate in those large projects and so.
Speaker Change: But again that just gives us the overall confidence in the future of the business, even when you experienced some some some bumps along the way.
Speaker Change: And I think that's showing up in a really strong Americas revenue growth at 9%.
Speaker Change: Is there any way to sort of bifurcate that growth between what youre seeing in the underlying end market trend versus what could be the targeted increase project scoping and share gains.
Speaker Change: Well again, we're seeing we're seeing a higher growth rate in program management, but when you look across kind of the way, we think about our business lines our markets. It is.
Speaker Change: Broad based.
Speaker Change: Yes.
Speaker Change: And then last one for me you know really strong margins in the quarter up 40 basis points can you help us just think about the puts and takes on margins this quarter and the balance of the year.
Speaker Change: You're accelerating investment in digital and advisory, but wondering on the positives.
Speaker Change: Contributor side, how much of a benefit is mix versus the enterprise capability centers and automation initiatives.
Speaker Change: <unk> laid out previously so so.
Speaker Change: I'll, let guard take that question and then.
Speaker Change: I'll follow up I'll follow up with a with a little bit of discussion on our digital investments.
Speaker Change: Hey, Adam how are you so you're right margins continue to be very strong as you recall our guidance for the year was 30 bps up.
Speaker Change: Increase we've exited Q1 at 40 bps of increase led by all time high margins in both of our segments in Americas and in the international markets and you also have direct to point out. This includes continued significant organic investments we make in our business.
Speaker Change: Let it be through the water advisory environment Advisory business, Laura articulated earlier to any opportunities, where we think we can drive the right returns through business.
Speaker Change: But in our international markets, we're pleased and we're very pleased to report the one two book to burn, which was ahead of our expectations in that international market. So the international margins definitely had a lot higher than planned business development and I'd also be remiss not to point out <unk>.
Speaker Change: Compared to plan, our international margins also had FX headwind and they still grew 20 bps.
Speaker Change: Year over year, so as we as we move forward. We continue to expect good strong margin generation based on all the investments we will continue to make because it's very representative of the culture that has seeped through this operation, especially in the people business, our culture, which is just focused on finding opportunities to drive the right value.
Speaker Change: <unk> for our clients, which in turn also drive value for our shareholders.
Speaker Change: Yeah.
Speaker Change: So just to.
Speaker Change: Talk a little bit about the nature of some of the investments again as <unk> pointed out.
Speaker Change: We're investing more than ever and business development, we're investing more than we ever had in our people and their professional development.
Speaker Change: We're investing in building the advisory business.
Speaker Change: And then we're continuing to invest in growing and building the program management business, but also importantly, we are investing in what we call. Our again, our digital transformation of the way we deliver work.
Speaker Change: And that really is.
Speaker Change: Has developed into something that's slightly different so we started a few years ago, making those investments to transform how we digitally delivered to the underlying work.
Speaker Change: But we recognized about 18 months ago that digital was transforming itself into.
Speaker Change: Artificial intelligence.
Speaker Change: So we developed a road map and we've been working against that roadmap starting with.
Speaker Change: Investing to actually prepare our bids using AI tools and so now that is something we do across the organization.
Speaker Change: On that roadmap. We also developed some other use cases and those use cases are now underway executing against those and those were supporting how we actually run the business or support our projects.
Speaker Change: Next on that roadmap that we've started working on is actually the way, we deliver our design and our engineering work.
Speaker Change: And so.
Speaker Change: That is going to I think have a profound impact and we're investing a significant amount of money in those digital initiatives.
Speaker Change: And I would again think about it this way as we gave guidance.
Speaker Change: In our Investor day last year that through our digital efforts.
Speaker Change: We would.
Speaker Change: We thought we would reduce the amount of effort to deliver work by 5% to 15%.
Speaker Change: With where we're headed now and based on the investments, we're making in digital and AI, we see that number being larger as we move forward.
Speaker Change: So hopefully that gives you a perspective on the investments that were.
Speaker Change: We are making to our margins.
Speaker Change: I appreciate all the color. Thanks, so much.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Sangeeta <unk> from Keybanc capital markets. Your line is open.
Sangeeta: Thanks for taking my question.
Sangeeta: So if I can ask about the L. A rebuild and how we should think of your contribution to that.
Sangeeta: If it's going to be more FEMA work in the short term and also what kind of type of long term revenue opportunity there could be maybe there is a historical parallels that you can help us to understand the scope.
Sangeeta: Yes, so thanks for the question.
Sangeeta: I would just I would say first of all.
We don't sort of call out kind of individual projects or individual pieces of work or our participation in them.
Sangeeta: Certainly not without not with our discussion with our customers.
Sangeeta: But maybe a way to think about.
Sangeeta: The recovery work and resiliency work and think about it as two phases and here's our participation is.
Sangeeta: Over the last decade, we've participated in the recovery.
Sangeeta: From over 700 kind of climate disasters.
Sangeeta: This is really kind of part of our business, which is continuing to support communities as they have to recover from.
Sangeeta: Yes, I'll, just say again climate events and other kinds of disasters, but helping them recover so that's a short term.
Sangeeta: We help them do that and we have a great deal of experience to do that and then in the long term is helping them become more resilient and as you sort of get to that phase of recovery.
Sangeeta: Even.
Sangeeta: A really significant amount of work to help that community become more resilient. So that if there is an event like that in the future.
Sangeeta: You could certainly reduce the impact of the cost you can never mitigated, but you can certainly go a long way.
Sangeeta: Sorry, we had a problem with one.
Sangeeta: Certainly goes a long way to go beyond recovery and making those those.
Sangeeta: Communities more resilient. So again, we have a long history of doing that around the world and certainly in the U S and working with multiple agencies, whether they are local state or federal.
Sangeeta: Helping communities recover.
Sangeeta: Great I appreciate that color and if I can ask on selling margins.
Sangeeta: Clearly a lot of progress has been made.
Sangeeta: And do you still feel like international margins will grow faster this year than the Americas margin was based on what Youre seeing in the pipeline and what do you think that's going to be driven by thank you.
Speaker Change: Hey, so neither of those garb I'll take that question.
Sangeeta: I.
Speaker Change: Right again, the comment on the margins. It is impressive even with industry, leading margins are professionals continue to drive to even a higher for better Northstar than what we have created before.
Speaker Change: And then it's probably as important to note that this margin generation is very clean in terms of all the restructuring activities that we have taken in the past.
Speaker Change: Current year, we don't expect any of those restructuring activities. So youre seeing that strong margin generation continue to grow.
Speaker Change: As I mentioned before better than the guidance, we have put forth a 30 bps.
Speaker Change: Do expect international margins will continue to outpace American margins.
Speaker Change: Consistent with the commentary we had provided before just because we were coming off a lower base. So the opportunities to drive that margin from a better value generation standpoint.
Speaker Change: Existing still exist in front of us from from international and our ambitions are very consistent with what we've already delivered in Americas in Americas, We're head and shoulders above our peers and international that's what we're going to drive to.
Speaker Change: Now with that said, there's always a balance as we've said we will make organic investments that are necessary to ensure that our business is positioned for sustained long term value creation and as we look in our international business from a growth standpoint, consistent with our plan the guidance we have put forth.
Speaker Change: New international is going to have not a strong of a growth year, but the pipeline the opportunities and pursuits continue to be abundant. So we've made those business investment dollars youre seeing the returns of that and our book to burn and we'll continue to do that throughout the year. So.
Speaker Change: Set of focusing so much on the on the segment margins, we look at it from an overall enterprise standpoint, and feel very confident we'll be able to drive the strong results if not better.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Michael Dudas from vertical research. Your line is open.
Good morning, gentlemen, Laura.
Hi, good morning.
Speaker Change: Hey.
Speaker Change: Troy you highlighted in your comments that Youre seeing expansion.
Speaker Change: My friend pipeline is growing as well.
Over the past, let's say three months since the election.
Speaker Change: You should expect just a sense of your clients are being more optimistic about bringing capital forward.
Speaker Change: In the U S as the reassuring.
Speaker Change: Opportunities accelerating and remind us how you did with your water business certainly can be helpful. On a lot of those types of projects, especially in India and the power side people are really talking about and certainly on the data center front is that part of where the pipeline can expand here in the next several quarters.
Speaker Change: So the answer the simple answer is yes.
Speaker Change: But let me give a little more detail in our pipeline at the moment, we have not.
Speaker Change: We have not seen a change in the makeup of the pipeline or the pursuits, certainly not in the markets that we play in.
Speaker Change: Some of the markets were not exposed to that's where you're seeing the change but.
Speaker Change: But as we look forward. There's no question that the intention of the administration is to re re <unk> activities.
Speaker Change: And if you combine that with an improvement in a permanent environment, where you can actually expedite the delivery of those projects.
Speaker Change: We think that creates.
Speaker Change: More opportunity here certainly in the U S markets.
Speaker Change: And so I think we're very well aligned against that we haven't seen an impact yet it will take time no doubt so that to have an impact and I think youll, probably start to see youll, probably start to see the impact of that.
Speaker Change: After the federal government puts forward, it's mixed budget.
John: That makes it I appreciate that thanks John.
Mike: Okay. Thanks, Mike.
Speaker Change: Your next question comes from the line of Judy <unk> from UBS. Your line is open.
Speaker Change: Hey, good morning, Thanks for taking the question on for Steve Fisher.
Speaker Change: We're now squarely within the long term, 5% to 8% organic growth range.
Speaker Change: Look out over the next few years.
Speaker Change: Are the factors that could drive acceleration towards the upper end of that range versus maybe moderation are steadier growth.
Speaker Change: Well again I think it is.
Speaker Change: A combination of things.
Speaker Change: First of all as we pointed out.
Speaker Change: Over the last.
Speaker Change: Really nine months, we've been in this unusual period, where I think we said this before there was a period of nine months or a year, where there were 53 federal elections.
Speaker Change: Around the world, which means that you have had a significant changes of governments or <unk>.
Speaker Change: One of his reelection sometimes those agendas change.
Speaker Change: And so we've been in this period, where.
Speaker Change: Theres been some decision change and obviously you have to have to work to react to that.
Speaker Change: But through that entire period, where there has been some uncertainty in those markets and they are certainly has changed and agendas.
Our business has been very successful in growing and I think thats as a result of.
Speaker Change: Again, the clients that we work with.
Speaker Change: The markets that we have been exposed to.
Speaker Change: The way that we are working with our clients in a more meaningful or influence your way by focusing on design program management and advisory work.
Speaker Change: And then a high win rate and so I think as you see stability.
Speaker Change: Over the course of the next few years.
Speaker Change: I think that will create a better marketplace for us and all things holding true as we continued to invest in the business. The same way. We are we would have more optimism around <unk>.
Speaker Change: Improved growth in the business over the next few years.
Speaker Change: Okay. Thanks, that's helpful and then just.
Speaker Change: One last question leverage I think it's under.
Speaker Change: One time.
Speaker Change: You mentioned being opportunistic.
Speaker Change: So.
Speaker Change: What would get you to do more M&A I know that comment probably.
Speaker Change: Didn't necessarily refer to M&A, but no.
Speaker Change: What will get you to the market.
Speaker Change: Yeah. So.
Speaker Change: First of all I'll just again, we say this we say this all the time, we take a returns based approach.
Speaker Change: So there is no question that the highest returning opportunities we see today, our organic growth our grant organic investments in the business.
Speaker Change: The limitation that we have on making investments in the business is actually time.
Speaker Change: It's timing of the management team of leaders and so we're investing everything we think we can into the business at the moment.
And then when you start looking externally we do believe that we should continue to return capital to shareholders. I think it becomes a question of how much and Thats, where we look at these returns based approach.
Speaker Change: There is no doubt that as we look out there might be places, where we would consider M&A to accelerate our organic growth. So for example.
Speaker Change: In our advisory business.
Speaker Change: There may be some opportunities for us to invest to accelerate the growth of our advisory business.
Speaker Change: But again, we'll stick will hold true to our returns based approach but.
Speaker Change: Maybe think about it that way is if we can find ways to accelerate organic growth, we would look at M&A to do that.
Speaker Change: Broad based M&A is not something that we've done or that we see in our future again, I'll say, especially in an environment.
Speaker Change: We're <unk>.
Speaker Change: Because of the investments that we're making we would actually see needing less people to deliver the same amount of work or said differently. It means it creates a wonderful opportunity for our people to accomplish even more with their clients.
Speaker Change: And that concludes our question and answer session I will now turn the call back over to Troy Rudd CEO for closing remarks.
Speaker Change: Again, thank you everyone for joining us today, we appreciate your support and engagement and thank you to all the employees and professionals at E com for the amazing job they've done over this past quarter and continue to look to do thank you very much.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: [music].