Q2 2025 AECOM Earnings Call
Andrew Wittmann, Michael Dudas, Adam Thalhimer, Andrew Kaplowitz
Good morning and welcome to the AECOM Second Quarter 2025 conference call. I would like to inform all participants this call is being recorded at the request of AECOM.
This broadcast is a copyrighted property of AECOM and a rebroadcast of this information in whole or part without the prior written permission of AECOM is prohibited. As a reminder, AECOM is also simulcasting this presentation with slides at the Investor section at www.aicom.com Later we will conduct a question and answer session.
Speaker Change: If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, again press star one.
Will Gabrielski: Thank you, operator. I would like to thank your attention to the Safe Harbor Statement on Page 1 of today's presentation.
Will Gabrielski: Today's discussion contains forward-looking statements about future business and financial expectations.
Will Gabrielski: Actual results made differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC, except as required by law, we undertake no obligation to update our forward-looking statements.
Will Gabrielski: Any reference to segment margins or segment adjusted operating margins will reflect a performance for the Americas and international segments.
Will Gabrielski: When discussing revenue and revenue growth, we will refer to net service revenue or NSR, which is defined as revenue excluding pasture revenue.
Will Gabrielski: NSR growth rates are presented on a constant currency basis and less otherwise noted.
Will Gabrielski: Today's remarks will focus on continuing operations. On today's call, Troy Rudd, our Chief Executive Officer, will review our key accomplishments, our strategy, and our outlook for the business.
Will Gabrielski: Lara Poloni, our president. We'll discuss key operational successes and priorities.
Speaker Change: and Gaurav Kapoor, our Chief Financial and Operations 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. Troy?
Troy Rudd: Thank you, Will, and thank you all for joining us today.
Speaker Change: The second quarter was defined by change, some anticipated, and some unexpected. As we've done over the past six years where we have faced events that created macroeconomic volatility, we successfully navigated the business to deliver strong results.
Speaker Change: Our second quarter results are a testament to the strength of our culture and of our professionals across the organization.
Speaker Change: Our teams are the best and brightest in our industry and through their efforts we deliver a technical advantage to every client and every project. Importantly, they continue to showcase the competitive edge that we have created in our platform that allows us to deliver results.
Speaker Change: I want to highlight two recent notable accomplishments that demonstrate our industry leading market position.
Speaker Change: First, in our release, its annual several results last month, and I am pleased to report they were moved up one place during the distinction as the number one overall design firm.
Speaker Change: We also had our number one rankings in transportation, water and facilities affirmed and when combined with our existing number one ranking environment, we hold a leadership position in each of our end markets.
Speaker Change: Second, in March, we were appointed as the sole venue infrastructure partner for the LA-28 Olympic and Paralympic Games.
Speaker Change: We are honored to be selected for an unprecedented scope that includes all critical elements of architecture, engineering, planning, program management, and construction management.
Speaker Change: The unrivaled depth and breadth of our technical expertise, as well as our proven track record of delivering past iconic global sporting events, were essential in our success.
Speaker Change: No other company can rival what we offer and deliver to our clients on these types of large complex projects.
Turning to a financial results.
Speaker Change: I'm pleased to report strong second quarter and first half financial results highlighted by record second quarter NSR margins and EPS.
Speaker Change: Growth was the highest in the Americas, our largest and most profitable regions [inaudible]
Speaker Change: I.I.J. spending continues to increase and with less than 35% of the total funding spent thus far silver years of strong federal funding for infrastructure remain for our markets.
Speaker Change: I should note, two items impacted our NSR growth. First, we had fewer work days in the quarter due to the timing of holidays.
Speaker Change: This reduced growth by approximately 100 basis points in the quarter.
Speaker Change: Second, we experience isolated delays and deferred decisions on a limited set of projects which impacted our top line growth. That said, these delays are not uncommon whenever there is a change in administration and the impact to our backlog was minimal.
Speaker Change: The segment adjusted operating margin rose 90 basis points to 16.1%, which is a second quarter record.
Speaker Change: This increase reflects strong execution, growing contribution from higher margin advisory services, faster growth in our highest margin markets, and ongoing continuous improvement initiatives.
Speaker Change: Our industry-leading margins include record investments in innovation, technical excellence, and business development, all of which are accelerating in a second half of the year based on the opportunities ahead.
Speaker Change: Adjusted EBITDA increased by 8% to $290 million and adjusted EPS increased by 20% to $1.25. Both of
Speaker Change: Free cash flow in the quarter increased by 141% to $178 million. We returned $110 million to shareholders during the quarter through share repurchases and dividends, and $165 million in the first half of the year.
Speaker Change: A return-based capital allocation policy remains unchanged and we will continue to allocate our consistently strong cash flow to the highest returning opportunities
Speaker Change: This includes the $900 million remaining on our current share repurchase authorization.
Speaker Change: Looking ahead, our confidence for the rest of the year and beyond is supported by several key factors.
Speaker Change: First, our backlog increased quarter-record to a new record, given by a 1.1 times book to burn ratio.
Speaker Change: Our underlying book to burn ratio was even higher, but changes in a small number of government contracts following US federal agency reviews resulted in a removal of approximately $100 million from backlog.
Speaker Change: In addition, our pipeline of opportunity is also at a record level and growth is fastest at the earliest stages of our pipeline, consistent with our expectations for several years of continued growth in our largest markets.
Speaker Change: Second, through our competitive edge platform, we're delivering record high win rates.
Speaker Change: This includes 80% success on large enterprise critical pursuits, year-to-date, and a better than 50% win rate overall. Our consistent success comes from strategically deploying our best technical resources to the highest value clients and opportunities.
Speaker Change: Strong client relationships and differentiated capabilities across the investment life cycle from design to advisory and program management.
Speaker Change: Third, Global Megatrans remain robust, including $50 trillion in projected infrastructure investment through 2040 across transportation, water and energy.
Speaker Change: Aging infrastructure, current requirements for sustainability and resilience, and the rising energy demand create a favorable backdrop that drives inevitable demand.
Speaker Change: EFIS structure enjoys strong bipartisan support across all of our markets and is an essential element of thriving economies.
Speaker Change: Fourth, we are investing to accelerate organic growth and expand our competitive advantage.
Speaker Change: This includes ongoing additions to our advisory and program management teams to meet growing demand as our clients navigate greater regulatory uncertainty and larger investments. This is consistent with our long-term objective of delivering 50 percent of revenue from advisory and program management over time.
Speaker Change: Lastly, against a backdrop of changing political dynamics and resulting policy shifts after the unprecedented number of elections last year, a few points bear repeating. The work we do for our clients is highly technical and critical to their missions.
In fact, many projects that were paused have now resumed
Speaker Change: Given the professional services nature of our work, tariffs are not expected to directly affect our business.
Speaker Change: Over 70% of our workforce is versatile across market sectors and can be deployed to the strongest growth opportunities.
The Eregulation and Permitting Reform are tailwinds to our business.
Speaker Change: and a declining public sector workforce has been a secular tail in far industry and increasingly a demand driver for advisory program management services.
Speaker Change: To summarize, our first half results were head of our initial expectations, our backlog is at a record high. This performance underscores our confidence and as a result we are increasing the midpoints of our EBA and EPS guidance for a second consecutive quarter.
With that, I will turn the call over to Lara [inaudible]
Thanks, Troy.
Speaker Change: Our consistently strong results, including quarter over quarter growth in backlog to a new record are testament to the competitive advantages created by our strategy and our relentless focus on long-term valued creation.
Speaker Change: These attributes enable us to deliver even during periods of increased uncertainty. I want to spend a moment discussing trends across our largest markets and how we are positioning to capitalize.
Speaker Change: Trends in the US remain robust, which is our largest market at more than 50% of our net service revenue.
Troy Rudd: We have built a record backlog driven by a 1.2 book to burn ratio in the quarter. As Trionaj had less than 35% of IAJA funding has been spent, but nearly all has been appropriated and therefore not at risk of being cut. This creates a great deal of visibility for our clients and for us.
Troy Rudd: Additionally, the passage of the Continuing Resolution in March provides our public sector clients with budget certainty for the remainder of the year.
Troy Rudd: This includes our U.S. State and local clients which account for approximately 30% of our revenue. Nearly half of our state and local revenue is from the transportation sector with the remainder primarily for water and environment projects.
Troy Rudd: All of these markets utilize dedicated funding sources, be it the Federal Highway Trust Fund, dedicated tax of one-measures, user fees or regulatory drivers.
Troy Rudd: In addition, 75% of our environmental remediation work is driven by state and local regulations not federal, and we are seeing increased activity as a result.
Troy Rudd: In addition, we are well positioned to capitalize on Department of Defense funding increases where we provide highly technical and mission critical services.
Troy Rudd: In fact, our pipeline of DOD opportunities was up by double digits over the prior quarter and our win rate on these pursuits is materially above our enterprise win rates, bolstering our optimism in growth.
Troy Rudd: Canada is strong as well with double digit growth in revenue and backlog
Speaker Change: Prime Minister Karni's election crystallized the country's ongoing commitment to infrastructure as evidenced by key elements of the new administration's $150 billion investment plan.
Speaker Change: In addition, Kebek unveiled its 10-year budget in March which calls for a further 7% increase to its infrastructure investment forecast, providing for a strong market backdrop. A crisis of international segment, secular drive is in place, but near-term trends remain
Speaker Change: In the UK, our largest international market, net service revenue and backlog both increased and backlog is at an all time high.
Speaker Change: While larger transportation projects continue to face delays while the UK Government works through its budgetary challenges, our large positions on key frameworks create a stable level of activity through periods of reduced large project activity.
Speaker Change: In the intermediate term, AMP-8 water investment is set to more than double AMP-7 in the coming years. And so far, our framework capacity is more than 150% higher than in the AMP-7 program.
Speaker Change: This underscores that AMBATE is a key component of our target to double our global water review in the next five years We are also experiencing strong growth in energy, including our ongoing work for the multi-year great grid upgrade program as well as accelerating opportunities in the nuclear power market
Speaker Change: To bolster our capabilities in this region, we recently acquired Alan Gordon, a Scottish water and energy consultancy, which enhances our UK and Ireland presence and client relationships.
Speaker Change: Turning to Australia, trends continue to be mixed. In the water sector, growth is accelerating and we have had several recent marquee wins including our recent selection is the Design Delivery Partner for Sydney Waters Capital Investment Program.
Speaker Change: However, this growth has been offset by a pause in the transportation market following a robust decade of investment. Even so, our backlog increased by double digits in the quarter and our pipeline remains strong, which are good indicators of future growth opportunities.
Speaker Change: Turning to the Middle East, revenue increased in the first half of the year, while the timing of holiday's impacted our second quarter results, Gaurav remains positive.
Speaker Change: The reprioritization of some gigacities to projects for the World Cup and Expo is creating new opportunities. These events have delivered a fixed, which creates visibility for our industry leading position over the next few years. To that point, our backlog remains near an autumn high.
Speaker Change: Lastly in Hong Kong, work is beginning on the $30 billion Northern Metropolis investment program. This quarter we were awarded a contract to provide technical services for the Northern Metropolis highway that will enhance East-West connectivity which further demonstrates our leading market sharing Hong Kong and the scale of opportunity for the hit.
Speaker Change: Across these markets, one trend is clear. The demand for comprehensive design, program management and advisory services has never been greater. We are extending our competitive advantage with investments in key growth markets and ensuring that we continue to prioritize our resources to the best growth opportunities.
Speaker Change: I couldn't be more proud of our win rate record, backlog position and excellence in the marketplace with that I will turn the call over to Gaurav.
Gaur: Thanks, Lara. Our second quarter and first half results underscored the strength of our professional services business model.
Gaur: As a result, we are raising our EBITDA and EPS guide and midpoints for a second consecutive quarter Our second quarter results included records for net service revenue and margins which contributor to 8% adjusted EBITDA growth and 20% adjusted EPS growth
Both of these metrics were second quarter records.
Gaur: Our backlog and pipeline are both at all-time highs. Within this contracted backlog and the design business increased by 5% and our pipeline has now set new highs and four consecutive quarters which supports our confidence in the second half of the year and beyond.
Speaker Change: As Troy articulated, our margins were strong in the quarter and have increased by 70 basis points year to date, which is modestly ahead of our expectations for the first half of the year. There were no unusual items in our second quarter or first half margins.
Speaker Change: We are confident in delivering not only on our 16.1% margin guidance this year, but in going well beyond our 17% long-term target as the opportunities for competitive improvements are becoming more apparent.
Speaker Change: This includes a growing share of higher margin and size reservices, continued advancement of our AI and digital initiatives further growth in our enterprise capability centers and our focus on continuous improvement.
Turning to our segment results beginning in the Americas.
Speaker Change: NSR increased by 6% including growth in both the US and Canada.
Speaker Change: Growth was also broad-based across all of our end markets, underscoring continued client-demand from the long-term secular mega-trends and continued robust funding from IIJA, state and local budgets and provincial and national funding in Canada. The adjusted operating margin increased by 130 basis points to 19.4% a new second quarter high.
Speaker Change: We continue to deliver further expansion on our industrial being margins, which is unlocking the capacity to invest in high returning organic growth at record levels.
Speaker Change: Importantly, our backlog in the Americas is at a record level, reflecting a 1.2 book to burn ratio. Our contracted backlog is also at a near record level.
Speaker Change: In the international segment, net service revenue increased by 1%, which continues to reflect the very trends by market that Lara reviewed earlier.
A few factors give us confidence as we look ahead.
Speaker Change: First, our backlog in the international segment is at a record high. Second, our pipeline is also increasing, including substantial growth in early stages. And finally, we continue to expand our margins with increased by 10 basis points to 11.1% in the quarter.
Turning to Tashflow and Capital Allocation
Speaker Change: We maintain excellent balance sheet strength with net leverage of 0.7x and certainty of low cost of death.
Speaker Change: Turning to guidance. As I mentioned, we are increasing the midpoints of our adjusted EBITDA and ETS for the full year which are now expected to increase 9% and 14% from the prior year.
Speaker Change: While we have experienced greater than expected volatility in certain of our end markets, we have built a track record of delivering through periods of uncertainty which our first half financial results affirm
Speaker Change: As Troy noted, we will continue to execute on factors within our control and our confidence is high in delivering on our full-year goals. With that operator, we are now ready for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you would 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. Your first question comes from a line of Michael Feniger from Bank of America. Your line is open.
Michael Feniger: Thank you. Good morning, everyone. Just in terms of the guidance, Troy, it implies a second half.
Halty, double digit U.S. growth.
Speaker Change: Can you just talk about your visibility into that level of growth in the second half?
Speaker Change: Is it more top line base? Is it more bottom line in the confidence on the profit margins? Just given some of the uncertainty out there in the macro, I'm just kind of curious what your level of confidence is on that second half. We think of top line or bottom line looking at those margins.
Sure, so good morning, Michael.
Speaker Change: I'm just going to give you the headline and I'll give you some more detail but the headline is it's actually it's going to be balanced [inaudible]
Speaker Change: So we expect to continue to have top-line growth and as we said even at the beginning of the year we expected.
Speaker Change: that our revenue had ramped over the year. And that was really a result of the macroeconomic environment that we had forecasted. And as we said in our prepared comments is that there had been an unprecedented number of elections, which means that there had been a shift in agendas.
Our overall growth in our backlog has continued.
Speaker Change: But the other thing that we see is we've actually seen some really healthy winds in the quarter and some of those winds actually don't have an impact on our backlog.
Speaker Change: A good example that are some of the master services agreements or frameworks that we win.
Speaker Change: and when we win them, we don't actually record backlog until we're confident that we actually have that work to do or perform, and typically that's under a task order.
Speaker Change: When we sort of look at the success we've had in our backlog, we also have visibility into things that we know that are going to come through frameworks and MSAs that we've won, that will impact a second half of the year, and then the other really important thing is our pipeline.
Speaker Change: is, you know, even through this time, there has certainly been pivots.
Speaker Change: and what might be the components of our pipeline, but our pipeline has continued to grow, and again, as we said in the prepared comments, we've actually seen growth in the early stages.
Speaker Change: which again gives us visibility into the next few quarters, but it gives us actually visibility beyond that into the next few years. So we actually have great optimism, certainly about the second half of the year.
Speaker Change: and Growth, but we do for the long term. And then I said it was balance with respect to margins.
Speaker Change: We still see a lot of room for margin improvement in the business.
Speaker Change: And I will just attribute that to the investments that we have been making over the past years and as we continue to make the run to our margins.
Speaker Change: and we expected those investments will continue to bear fruit and have us continue to improve margins as we move forward. So we see our success the second half of year being balanced, both in NSR growth and margins.
Speaker Change: Improvement. Helpful. And just on the comment on the isolated delays, just...
Speaker Change: Are we through the worst, do you feel like on that those isolated disruptions and some of the delays do you feel like the disruption could linger it was a more in the beginning of the quarter?
Speaker Change: or towards the end in April just kind of give us some context on some most isolated disruption and delays and if you in the company feel confident we're you know kind of have our arms around that. [inaudible]
I would say, I would say yes.
Speaker Change: I think we have confidence that we have our arms around it.
Are we finished with the delays? I don't think so
Speaker Change: I think they're just sort of their delays caused by again for different reasons. You know, the first thing we saw, you know, delays based on some decisions that were being made after the, you know, the second quarter after the result of the U.S.
Speaker Change: Federal Election, so as President Trump took office, there was some changes.
Speaker Change: as we look at our clients certainly in the federal government.
Thank you.
Changes will be ongoing.
Speaker Change: The U.S. Federal Government represents, you know, eight or nine percent of our overall NSR. So when we talk about disruptions, I don't want to give the impression that's across the entire business.
Speaker Change: That's the rest of our business. We certainly don't see that kind of change of disruption. Anything from what we typically see during the course of a year. [inaudible]
Speaker Change: Great, I'm just going to sneak one more in there. Just on the free castle. Right here, you got to hit a milestone. It was 10% free castle margin on net service revenue.
Speaker Change: I mean, how are you feeling tracking for 2025, given that first half performance? Is there some big give back in the second half? We should be aware of, or is there some structural shifts going on in the conversion rate that we should be flagging? Thank you.
Speaker Change: I'm a legartic that question. Hey Michael, are you?
Gaur: It's specific to fast free cash flow and thank you for acknowledging it was a great milestone event we achieved last year and that's going to be continued to be our focus.
Gaur: On an annual basis, we want to continue to meet that great milestone of 10% free cash flow conversion.
Thank you.
Gaur: But at the same time quarter to quarter, our focus always is to have as good of a phasing as we can.
Gaur: So, in first half, it was better than we have experienced in almost over a decade, we'll continue to challenge ourselves every quarter to...
Gaur: Be better than what we delivered in prior year, but I think for the full year your expectations are quite consistent in terms of 100% plus free cash flow conversion of our adjusted net income and trying to achieve that 10% to try to better that again.
Speaker Change: Your next question comes from the line of Sabahat Khan from RBC Capital Markets. Your line is open.
Speaker Change: There was obviously a lot of headlines through the calendar Q1 here, maybe just a confidence of the private sector and how your customers are feeling there. Thanks.
Speaker Change: So the most important thing to note is our product business, that 30% of the overall enterprise number I gave you, it grew in the quarter and we're seeing the same trajectory for remainder of the year as well.
Speaker Change: More importantly, it is not as cyclical as what one would normally conitate with a private business environment.
Speaker Change: if the macroeconomic uncertainty continues. And the reason we're confident in making that statement is two-thirds of our private business is water and environment related more specifically. It's regularly driven and off-ex for those clients because they're
Large public utilities
Speaker Change: Also, large global ONG majors, you know, who, again, statutory and legally, have to do environmental remediation work. We've been doing this work
Speaker Change: for decades long for these clients. It's very consistent, very predictable. And the rest of the design business, you know, outside of that two thirds.
Speaker Change: It's also not that cyclical. It is focused on our facilities, business and market, but it's for ports and airports where, you know, quite a bit of the portion of the funding does come come from the public sector.
Speaker Change: Another great example of that is, on our facility sites, we press release the Olympics in 2028. It's a long-term, not cyclical work over the next three and a half years as we support that client for that event. So that's part of our private business as well.
Speaker Change: Okay, great. And then maybe just I guess given off that is going on sort of you know seems like the underlying business trends are good balance sheets and good shape.
Speaker Change: and obviously a lot of sort of market volatility on the stock side. What do you mean perspectives on share buybacks, capital allocation here for the rest of the year? Thanks.
I'll respond to that as well, Sabah.
Speaker Change: There's no change in our capital allocation strategy. We continue to execute our capital allocation strategy in the first half in the current quarter. And specific to our repurchases as we've told our investors, it will be consistent with the free cash flow we generate, which generally is second half weighted for us.
Great, thanks.
Speaker Change: Your next question comes from a line of Andy Kaplowitz from Citigroup. Your line is open.
Nick Warner, everyone.
Mornin' Forny [inaudible]
Speaker Change: So I think we understand that you want to be conservative and also invest in your business as you said. You were 70 base points ahead on margin the first half of the year versus 30 base points. God it's so, maybe you could just give color into the better performance in the Americas. Are you expecting to invest more in the second half or maybe given international margin was only up monthly in Q2? You want to be conservative? I just think more color would be helpful.
Speaker Change: Sure, Andy. When we think about investing to create and improve margin, we think about that across the entire business.
Speaker Change: Again, recognizing that each of our geographies and frankly lines of business that come with different natural and natural margin profiles, and those are things that we simply can't control. Those are driven by the market or by the size or scale of those particular businesses.
Speaker Change: As we think about how we continue to invest, we're going to continue to invest heavily in the second half of the year similar to what we did in the first half. And think about this as investing in a few different ways. First is, we're always going to continue to invest in business development.
Speaker Change: As we said, our pipeline continues to grow. We're not going to shrink away from investing in future work or future opportunities.
Speaker Change: Secondly, we continue to invest in how we actually drive efficiency and what we do and whether that's in how we run the business.
or how we deliver our work.
Speaker Change: We're going to continue to make those investments and those investments come in the way of either technology or they come in the way we think about how our teams actually come together and share work and deliver it and one of those examples that we've talked about frequently has been our enterprise capability centers.
Speaker Change: We continue to expand the use of those capability centers because they drive great efficiency.
Speaker Change: in how we deliver our work and they also help with quality.
Speaker Change: So, we will continue to accelerate investments in technology to support the business and in things like our capability centers so those things aren't going to change for us in the second half of the year.
Thank you. Bye. Bye.
Speaker Change: very helpful and then maybe just like thinking about book to burn you've continue to have strong book to burn you know 1.1 here there's a kind of environment allow you to continue to book that kind of level of work Troy and have you seen any you know incremental slowdown in May or is it sort of you know steady as she goes here what market sort of driving the growth is it's still more on the water side or is it kind of balanced as you said [inaudible]
Speaker Change: So I guess the simple answer is yes we have confidence that we'll continue to book more business than we burn in a quarter and I think this is
Speaker Change: I think this might be our 18th consecutive quarter of Book to Burn greater than one.
Speaker Change: So that obviously gives us some confidence that we know how to win work.
Speaker Change: And our win rates, we made this reference. I think in our prepared comments that our win rates are also in an all-time high, you know, we win of every dollar that we bid across entire business, we win more than 50% of what we bid.
Speaker Change: But again, I think the thing you should think about coupled with our win rates is again our pipeline and our pipeline continues to grow. So we have confidence that we'll continue to book more work each quarter than we burn.
Thanks, Tray.
Thank you.
Speaker Change: Your next question comes from a line of Adam Bubes from Goldman Sachs. Your line is open.
Adam Bubis: Hi, good morning. I wanted to circle back to the America's Martian performance, a really impressive 130-base point of year. You cited growth in higher margin projects, continuous improvement, but wondering if we could just...
Adam Bubis: On-pack, that 130-base points margin performance because it really stands out, what's the greatest driver of that margin expansion, which higher margin and markets are supporting that growth? Any color there would be helpful.
Adam Bubis: Hey Adam, this is Gaurav, I'll take that question. It was exceptional performance by America's in margin. And what really contributed to it is its four holes, I'll go into the detail. Some of this Troy's already shared in his previous response.
Thank you.
We've made significant organic investments.
Adam Bubis: Over the past few years. So the results we're seeing today, it's not based on actions we took in Q1 or Q2. These are continued organic investments. This management team has made over the last two to three years.
Adam Bubis: It's on high return on invested capital organic investments like our program management initiative that we started five years ago.
Adam Bubis: that went from 3% to now greater than 13% of our overall enterprise top line. It's also in the second half of the year we invested in our advisory business.
Adam Bubis: We're already seeing very good early returns, but more importantly, we're seeing better rickair and better focus on pricing in that business that already existed for us.
It's also a byproduct of our capability centers
These are design centers that we have across the globe
Adam Bubis: Mind you, these may be in countries that we operationally have exited over you know 60 plus countries that we've exited, but we still keep.
and Wittmann.
Adam Bubis: Also, if you would recall, last year in the first half, we had significant restructuring that we had initiated.
Adam Bubis: So now what you saw in the first half of this year in our trailing 12 months result is the full benefit of that restructuring show up, even though our results in the in the current year are clean and will continue to be very clean, meaning no restructuring and foretested.
Speaker Change: Terrific. And then is there a way to provide a context as to the magnitude of margin differential between advisory and program management and the balance of the business and just how you're thinking about the potential for a mixed tailwind to margins as you folks continue to grow that part of the business?
Speaker Change: Yeah, so maybe think about it this way is that program management has margins and margins that are very similar toward design business.
Speaker Change: and the advisory business, those margins are actually higher than that. But we're we haven't given we haven't given guidance on specifically what those ranges look like, but you can rest assured that they're better.
Great. Thanks so much.
Thank you.
Speaker Change: George, your next question comes from a line-up, Steven Fisher from UBS. Your line is open.
Speaker Change: Thanks. Good morning. I just wanted to ask you to put a finer point on the expectations you have for the growth rate in the second half.
Speaker Change: If we're talking about the midpoint of your organic growth rate,
Speaker Change: You know, you kind of have to be at the upper end.
for the next couple of quarters.
Speaker Change: I know in your first and Mike Feniger's question you talked about sort of an even doubt perspective and just sort of focusing on that.
Speaker Change: The Top Line, part of it. You know, with the visibility you have, you know, do you think?
Speaker Change: You know, you're aiming for the midpoint at this point, do you think the uncertainty kind of at this point leads you thinking about sort of the lower end? How are you thinking about sort of the finer point on the growth rate expectation for the next couple of quarters? [inaudible]
Speaker Change: Hey Steven, this is Gaurav, I'll take that question. So as we move into the second half of the year, I think your calculations are spot on in terms of to achieve the midpoint what we have to deliver. Now remember our first half broke.
It was impacted by fewer work days.
Speaker Change: The second half of the year is going to be benefiting as we turn around, right? And in the second half we are going to see some tailwind from it.
Speaker Change: When we look at our pipeline more importantly our backlog contracted awarded backlog our book to burn and all those things provide us with good
Confidence
Speaker Change: in the second half of the year that we'll be able, we're still very confident in delivering.
Troy Rudd: with the midpoint of our range. Now, with all that said, as Troy has commented earlier in previous quarterly calls, we're not that precise where we have 35 to 50,000 ongoing contracts, you know, if it's off by 50 basis points either way, 25 basis points.
Speaker Change: within a couple of quarters, that's manageable for us.
Speaker Change: and as you pointed out, when we bring that into balance with our margin delivery, our organic investments that we made.
Speaker Change: It provides, it continues to provide us with utmost confidence.
Speaker Change: that all the key metrics that create shareholder value, the earnings metrics, our cash flow metrics. We have full confidence, we'll be achieving those as well. And on the earnings side, as you may have noticed for the second quarter in the row, we've raised the midpoint to articulate the confidence we're seeing.
Speaker Change: Thank you for joining us. We will be back in just a moment.
Speaker Change: Super helpful. And then, you know, continued good progress on the international margins front. I'll be going to get a little bit slower than the Americas.
Speaker Change: You can implement to drive any more improvement in those international margins. I know selectivity has been a big focus area for you. For example, so just curious if there's anything kind of within your control that you're focusing on to the international side. Thank you.
Speaker Change: Thanks, Steven. It's Laura. I'll take that. I mean, I think a lot of the drivers.
Lara Poloni: A similar to the ones that Gaurav mentioned earlier, so the strategy to leverage our enterprise capability centers, that's equally mature, for example, in the international segment. And you're right. I mean, this quarter was tempered in terms of top-line growth, but the most positive thing that we see was that pipeline was up 6%.
Lara Poloni: So you're right, selectivity in terms of the clients, the key pursuits so we've had some good wins in the quarter equally between the America segment and the international segment and we'll continue to work the frameworks. I think those frameworks are particularly important on the international side.
Lara Poloni: particularly in our largest international market, like the UK, so we've got good coverage there, not just in transportation but also.
Lara Poloni: in AB 8 where we've now got, we're sitting at about 150% coverage, building on the position we had.
in app 7, and...
Lara Poloni: Accelerate, and now that we also have an election outcome in Australia, again it allows us to double down in terms of the momentum and the pipeline that we've been very focused on with some of our cool infrastructure clients as well.
Lara Poloni: and I'm just going to add one more point. I'm going to add one finer point to that, which is that when we I mean when we look at our business and we look at where we're investing in the business.
Lara Poloni: We don't necessarily focus on simply organic growth or margin improvement. We also look at it return on our capital.
Lara Poloni: and so sometimes when you look at markets that might have lower margins
Lara Poloni: When you take into account how quickly you can effectively record and collect the work, recording your books and collect the work that you're performing.
Lara Poloni: We actually see in a bunch of our international markets that we do very well in terms of the DSOs or DSOs sales outstanding.
Lara Poloni: and so when we evaluate those markets, it isn't simply the margin profile, the margin is improving and it's certainly good margins.
Lara Poloni: But we also look at the return on capital and the return on capital and a bunch of international markets that might look like lower margins have great returns on capital for us.
Thank you very much.
Yes, thank you.
Speaker Change: Your next question comes from a line of Jamie Cook from Truist Securities. Your line is open.
Jamie Cook: Hi, good morning. Just for follow-up questions. One, a nice quote, specifically just given where we started, you know, I mean, for the year in international. I mean, what is your expectation for international margins year-over-year for the full year? Do we expect them to be flat or can they grow just again based on where we are in understanding the American margins were very strong, but just clarification there? And then my second question, you know, just
Jamie Cook: You're longer-term margin targets. You target the five to eight percent, you know, top line grows and then the twenty to thirty-fifths [inaudible]
Jamie Cook: of Margin Expansion. If we look at your actual performance, you know, you continue to exceed expectations on the margin side, right? You're doing much better than the 20 to 30 dips.
Jamie Cook: Where is the top line? You know, seems to be more challenge, not challenge. I mean, you're doing a good job, but it's always harder to get the top line growth. So I guess...
Jamie Cook: Is there any, you know, we get this question, is there any view that potentially we would could switch the targets and potentially have a more aggressive margin target and a less aggressive top line target. Thank you.
Speaker Change: Hey Jamie, I'll take the first half of the question specific to international and DCSA margins as we look
Speaker Change: to the entirety of the year and second half. We expect DCSA and our American margins to continue to improve.
Speaker Change: Lara articulated just before in the question. One of the things we're really proud of is our international and America's business, continue to make significant investments through our margins.
Speaker Change: in the first half of the year. This also means that in our international business where we don't did not have the growth as we were expecting.
Speaker Change: On the revenue side in the first half of the year, we're willing to make that investment in our people because it's going to drive that return on investment that is always our key focus and mentality of how we operate. As we look forward to the second half of the year, again, one of the things to factor in is
Speaker Change: We expect growth consistent with the margin guidance that we have provided but also balance that you're not going to see the same result in the first half because now the restructuring benefit. [inaudible]
Speaker Change: is included that we undertook in the first half of the year, last year, it's now included in our training 12 months, but still the margins should be growing.
Speaker Change: And Jamie, I just want to add something to that. I think it's an important concept and something that we think about a lot when we run the business. And that is not all growth is of equal value.
Speaker Change: because as you point out, top-line girls can be hard. The contrary point is, top-line girls
If we want to erode our margins [inaudible]
and then actually deliver work.
and grow a lot faster rate we could. [inaudible]
Speaker Change: That is not a problem. We could bid work at lower rates and we could win a lot more work and we could drive our margins down. And so I think in this business.
Speaker Change: A really important sort of cannon for making sure you're making good decisions is
We should be finding...
Speaker Change: Work that is more valuable for our customers and for us. And that sometimes might mean that your top line growth maybe looks a little slower So I think it's an important part of what we think about when we run the business and we make decisions on what's important and creating value.
Thank you.
Speaker Change: Your next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is open.
Hey, good morning guys, I'm trying to think through you.
The
Speaker Change: Gross revenue versus net revenue, and I think that's starting to reflect. You talked about walking away from some construction management.
Speaker Change: of UD emphasizing construction management, or is there something starting in construction management that will...
Speaker Change: that would cause gross revenue to increase more in the coming quarters.
Speaker Change: Yeah, so I get good observation and it's really a combination of two things. One is being really thoughtful about the work that you're going to do and the risk that might be inherent in it, but also recognize that in construction management there are cycles.
Speaker Change: And so, you know, what we have been experiencing in a business as we've been working through a cycle.
Speaker Change: and we've been repositioning that business to do different kinds of work in the future.
and as you reposition the business, you burn off backlog.
and so as you're bringing out backlog, you'll see...
Declining, Gross Revenue. Thank you.
Speaker Change: and as we've built that backlog up in the future, it starts out in the first few years, usually a year or two years where you're doing, I'm going to call it pre-construction work . .
Speaker Change: that doesn't come with it the significant amount of gross revenue as you start to procure the build. And so we're just really going through that cycle, we've been burning off backlog and as we've refilled the backlog with, I'm going to call it with great projects.
Speaker Change: We're in that phase where we just don't have the same amount of procurement through that work, but it will improve over time.
Speaker Change: Okay, perfect. And then just quickly, can you give us an update on the wind down of AECOM Capital and just curious if we should keep modeling something?
for that business in 2026. [inaudible]
No, I shouldn't.
Thank you very much.
Okay, thank you.
Speaker Change: And that concludes our question and answer session. I will now turn the call back over to Troy Read for Closing Remarks.
Troy Rudd: Yeah, again, I just want to want to end by complimenting all of the folks here at ACOM. I've done an outstanding job.
Speaker Change: working together to work through an uncertain time and an uncertain environment and as a result of their extraordinary effort, it's proven up in our results. So thank you to our team and thank you all for joining us today. Take care.
Troy Rudd: That concludes today's conference call. Thank you for your participation. You may now disconnect.