Good morning, and welcome to the AECOM Fourth Quarter 2022 Conference Call. I want to inform all participants that this call is being recorded at AECOM's request. This broadcast is the copyrighted property of AECOM, and any rebroadcast of this information, in whole or part, without prior written permission from AECOM is prohibited. Additionally, AECOM is simulcasting this presentation with slides available in the Investors section at www.aecom.com. Later, we will have a question-and-answer session. I will now turn the call over to Will Gabrielski, Senior Vice-President, Finance, Treasury and Investor Relations.

Thank you, operator. I would like to direct your attention to the safe-harbor statement on page one of today's presentation. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to the 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. We use certain non-GAAP financial measures in our presentation. The appropriate GAAP reconciliations are incorporated into our materials, which are posted to our website. Any references to segment margins or segment-adjusted operating margins will reflect the performance for the Americas and international segments. When discussing revenue and revenue growth, we will refer to net service revenue or NSR, which is defined as revenue excluding pass-through revenue. NSR and backlog growth rates are presented on a constant-currency basis, unless otherwise noted. For year-over-year constant-currency growth for 2023 guidance, foreign-exchange rates are based on the underlying rates used when we set our 2024 targets in late 2021. Return on invested capital as measured on the continuing operations of the business and excludes any retained assets or liabilities of previously disposed businesses. Today's remarks will focus on continuing operations and exclude impacts related to our exit from Russia. On today's call, Troy Rudd, our Chief Executive Officer will review our key accomplishments, and our strategy and outlook for the business; Lara Poloni, our President will discuss key operational successes and priorities; and Gaurav Kapoor, our Chief Financial Officer will review our financial performance and outlook in greater detail. We will conclude with a question-and-answer session. With that, I will turn the call over to Troy.

Thank you, Will, and thank you all for joining us today. Fiscal 2022 was a year of many accomplishments and successes. I want to begin by thanking our employees for their unwavering dedication to their clients and to our purpose of delivering a better world. Our teams truly differentiate us in the market and are key to our widening competitive advantage. To fully capitalize on this advantage, we are continuing to invest in the professional development and personal well-being of our teams. Let me give you a few examples. First, we recently made a substantial investment in employee health care benefits in the United States. Beginning in 2023, employee premiums are being reduced by as much as 80%, which is especially beneficial against the backdrop of continued rising healthcare costs and inflation. We expect our health care benefits to lead both our industry and Fortune 500 companies. Second, we are investing to expand our technical practice networks, which bring together the best and brightest minds to share ideas and experiences. Today, tens of thousands of our professionals are connecting with colleagues around the world, which is furthering our commitment to enhanced collaboration. Finally, we are doubling down on professional career development. We have multiple leadership programs underway to expand opportunities for our employees. This includes a partnership with The Wharton School of the University of Pennsylvania. Our people are benefiting individually from these programs and the opportunity to expand their global collaborative relationships. Please turn to the next slide. Turning to our fiscal 2022 results, we extended our track record of delivering on all of our financial targets for the year. Our success in the market has transformed the trajectory and expanded the long-term earnings power of our business. Our fourth-quarter results were highlighted by 9% organic NSR growth in the Design business, which is the highest quarterly growth rate in more than a decade. This performance reflects our continued high win rate, a near record design backlog, and healthy end-market conditions. Notably, this performance does not include a material benefit from IIJA funding, which has materialized at a slower than anticipated pace. Turning to profitability. The full-year segment-adjusted operating margin increased by 40 basis points to a new high, exceeded guidance, and included accelerated business development investments in the fourth quarter. We also achieved our earnings guidance while overcoming a significant currency headwind, particularly in the fourth quarter. If not for these impacts, we would have exceeded our ranges for both adjusted EPS and EBITDA. Importantly, backlog in the design business, which accounts for approximately 90% of the NSR and profitability, increased by 8%, reflecting an all-time high win rate, while our pipeline of opportunities is also at a record level. We are winning what matters to transform the earnings power of our business. Please turn to the next slide. Our successes are the direct result of the deliberate actions we've taken over the past two years to deliver on our Think and Act Globally strategy and capitalize on our strengths. These actions have included collaborating globally like never before to capture the full power of our industry-leading technical capabilities, expanding our addressable market through program management and advisory services to complement our technical expertise, investing in digital AECOM to enhance our value proposition for clients, and finally, prioritizing our resources to the highest returning growth opportunities. Today, these actions are bearing fruit in the form of our record win rate, accelerating growth, industry-leading margins, and increased return on capital. I should note that our momentum has continued on all of these fronts into fiscal 2023. We had notable design wins in the first quarter of fiscal 2023 that further underpin the confidence we have in our growth outlook. As we look ahead, three secular growth drivers are accelerating across our markets. The first secular growth driver is the global infrastructure investment renaissance, which is driving synchronized funding growth across a number of our largest markets. In the US, multiple bills have been signed into law to fund infrastructure investment, creating many years of funding visibility. This includes the IIJA where, as I noted, funding has not materialized as quickly as expected, however, this funding is committed, and we expect these short-term impacts to resolve and create strong multi-year tailwinds. Internationally, the Australian and Canadian provincial governments are committed to their sizable infrastructure investments, and our backlog growth and win rates in these markets remain exceptionally strong. In fact, in both markets, we have secured large wins in the last few months to further solidify our confidence in growth for the next several years. The second secular growth driver is demand for sustainable, resilient infrastructure and investments in energy transition. The need for this investment is especially apparent in the aftermath of the hurricanes Ian and Fiona. In fact, we recently added the rebuilding of the Sanibel Causeway that was severely damaged by Hurricane Ian. We were also recently selected by San Diego Gas and Electric for a program management contract to move a substantial share of its grid infrastructure underground to protect the communities against wildfire, which is a growing demand driver for which we are well-positioned to deliver. Finally, our clients are accelerating investments to adapt assets and supply chains to post-COVID new normal. The US, for instance, is prioritizing the reshoring of critical manufacturing capabilities, while Europe and many parts of the world are advancing energy transition priorities. It bears repeating, we are ranked at or near the top of every high-value market that is critical to delivering the secular growth drivers. We are number one in transportation design, facilities design, green design, environmental engineering, and hold several leadership positions in the water sector. In addition, we have built a world-class program management business, which is a distinguishing competitive advantage that we did not have at scale in prior cycles. This capability has resulted in a step-change in how we engage with clients and the scope of the opportunities on each project and has resulted in some of our largest wins over the past two years. For example, we just announced our appointment as the program manager for California high-speed rail. Please turn to the next slide. We've initiated fiscal 2023 guidance for adjusted EBITDA of between $935 million and $975 million and adjusted EPS guidance of between $3.55 and $3.75. This guidance is based on accelerating organic NSR growth of 8%, which is underpinned by our strong backlog position and a 20% increase in bids and proposals submitted in our design business. This expectation is also balanced against near-term uncertainties in a few markets, most notably in the UK, where funding on major highway programs is uncertain due to the leadership transition and the potential austerity measures. In addition, we expect to deliver 40 basis points of adjusted operating margin expansion to 14.6%, a new high with profitable growth enabling both margin expansion and a continued high level of investment in our teams and to capitalize on a record pipeline. Finally, we expect another year of strong cash flow and we are reiterating our returns-driven capital allocation policy including our intent to return substantially all available cash flow to shareholders through repurchases and dividends. I should note the rising US dollar, which is not within our control, is having a translational impact on our international earnings. In fact, if not for impacts of foreign exchange, we would have expected to deliver adjusted EBITDA in excess of $1 billion in 2023 at the midpoint. This would have been ahead of the expectation built into our long-term model that supports our 2024 targets. As a result of this underlying outperformance, we are affirming our 2024 adjusted EPS target of at least $4.75. We're also increasing our 2024 return on invested capital target from 15% to 17% to reflect our strong performance to date and continued discipline on capital allocation. Taken together, the strength of our outlook speaks to the durability of our strategy and platform and the benefits of our focus on organic growth and high returns. I am proud of how well we are collaborating and going to market. Through our actions, we have created enduring competitive advantages with unrivaled technical expertise and a culture that is fully committed to our purpose of delivering a better world. With that, I will turn the call over to Lara.

Thanks Troy. Please turn to the next slide; our accomplishments over the past year were transformational and represented the realization of our strategy. We are a purpose-driven company and we continue to be inspired by the positive impact our teams have for our clients and in our communities. Our competitive advantages and culture of global collaboration are visible in the many momentum-changing wins that are changing the trajectory of the business. I will take you through a few examples. Beginning in the transportation market, we were recently selected for a nine-figure contract for California High Speed Rail. This win reflects so much of what makes collaboration so powerful. To this pursuit, we called upon a world-class rail program management, digital and local market expertise to create an innovative approach. In the end, our offering was substantially ahead of a very formidable competition. Our transportation business not only leads in the US but globally as well. The ingenuity of our teams was on full display in a recent win in Australia where we were selected for a substantial tunneling project that will transform transit options for the community. Key to our selection was the close relationships we’ve built with key partners and our approach to reducing technical risk and construction cost through our design. We were also recently selected for the northeast link in Melbourne, Australia, won several notable projects in Canada including the 16-kilometer Ontario lines of the metro links and have key precedents in the UK with decisions expected this year. It was a great year for our transportation business. Turning to our industry-leading environment business, we had several marquee wins during the year. For instance, we were awarded the multi-year NAVFAC Atlantic contract by the US Navy and facing a very formidable incumbent, we also hold the contract for another key large region for this client. On a combined basis, we now have the greatest value exposure to these clients' environmental programs. In addition, we are gaining critical share with FEMA, as demonstrated by our selection for the RiskMAP program earlier this year. This program represents the key flood risk assessment and disaster response program with this client. Our success also extends to the private sector where we are advising on some of the largest and most complex environmental remediation projects in the world, including the Faro mine remediation program in Canada, which is the largest project of its kind in that country. In water, we are increasingly responding to the growing demand for clean and safe drinking water supply. During the year, we were selected for the Padre Dam East County Advanced Purification program. This facility will recycle up to 95% of water throughput, which will set the bar for water reuse. This program is part of an expected nearly $10 billion being allocated in California alone to address the growing need to ensure adequate water supply. Similarly, in Canada, we were selected for the North Shore Wastewater Treatment plant, a LEED-certified facility that will serve a quarter of a million residents in the Vancouver area. These large complex facilities are a great representation of how we are helping clients and communities address the biggest challenges of our time. These wins are changing our momentum and our digital AECOM investments are expanding our advantages further. A great example is in the water market where we recently unveiled our PipeInsights product, which uses a proprietary algorithm to accelerate water system inspections and enhance defect detection. Through this technology, we can provide actionable insight to our clients in one hour versus the several weeks or months it takes our competitors. This is possible because of our deep technical understanding of our clients' critical infrastructure, which sets us apart. Across all of the successes, we are in a great position to lead the development of transformational projects that will leave a lasting impact for future generations. With a strong foundation in place and further progress on our strategic priorities, we are confident that AECOM will continue to lead the industry with our expectation of delivering growth over the long term. With that, I will now turn the call over to Gaur.

Thanks, Laura. Please turn to the next slide. Our focus on sustained value creation through highly profitable organic growth and disciplined capital allocation is resulting in consistently strong performance. In fiscal 2022, we encountered numerous unplanned market headwinds. Even so, the competitive advantage of our platform and dedication of our teams to delivering on our commitments produced another strong year of performance. In the fourth quarter, we delivered our highest organic NSR growth in the design business in nearly a decade, our margins for the year reached a new all-time high and exceeded our guidance, while strong cash flows supported our shareholder value-focused capital allocation policy. Importantly, we are positioned for continued growth with record full-year wins in the design business and a near-record backlog position. As Troy and Lara noted, our success in the market is transforming the trajectory and long-term earnings power of our business. Please turn to the next slide. NSR in the Americas design business increased by 5% in the fourth quarter, which was the highest growth rate this year and reflects the continued acceleration we saw throughout the year. Our wins and pipeline were strong. We had a 1.2 book-to-burn ratio in the design business in the fourth quarter, which resulted in 9% total backlog growth in the design business to a record high and our contracted backlog also increased. Our Americas business continues to lead the industry margins and delivered in the fourth quarter, consistent with our expectations. We strategically accelerated business development during the quarter to capitalize on an unprecedented pipeline of opportunities, which contributed to double-digit growth in our bids submitted and proposals. These investments are already starting to pay dividends and early wins in fiscal 2023, as noted by Troy and Lara earlier. Investing in the future while leading our industry in margins is a perfect example of the competitive advantage we have built within our platform. Please turn to the next slide. NSR growth in the international segment accelerated to 13% in the fourth quarter and included growth in all of our largest geographies. Key to delivering this double-digit growth is our high win rate in our core markets. Backlog increased by 6%, highlighted by strong growth in the UK, Australia, and the Middle East. Contracted backlog also increased and remains near a record high, which is a great leading indicator of growth. Margins expanded to 9% in the quarter, a new high for the segment and a 160 basis-point increase from the prior year. We have made tremendous progress on our target of double-digit margins by executing our strategy and creating efficiencies within the organization. We have exited and will continue to exit lower returning markets, so we can prioritize our capital and time to our highest returning opportunities. Please turn to the next slide. Turning to cash-flow liquidity and capital allocation. Our returns-focused capital allocation policy is unchanged. As such, our first priority is investing in our teams, our digital capabilities, and to capitalize on the strong organic growth opportunities ahead, which provide an incremental return on capital of approximately 50%. After these investments, which are made through our margins, we are repurchasing our stock and paying dividends with substantially all available cash flow. During the year we returned nearly $500 million, including more than $420 million of share repurchases. In total, we have bought back 26 million shares since September 2020 when we initiated our repurchases, or 16% of our shares outstanding, and have earned a high return. We continue to believe investing in ourselves through organic growth or share repurchases provides superior EPS growth and returns when compared to other options. This includes M&A. Given today's disparity between value and price in the market, the result of our capital allocation policy is evident in our EPS growth, which has increased at a double-digit pace organically and our strong ROIC. With respect to dividends, it remains our intent to grow our per share dividend by double-digit percentages annually for the foreseeable future. Our ability to deploy capital is supported by strong cash flow. For the year, our free cash flow of $586 million exceeded the midpoint of our guidance, and we had a better phasing of cash flow throughout the year, which is a benefit to our return on capital. Given the volatility in many sectors of the economy and across the globe, it is worth repeating that our business has inherent attributes that lend to consistently strong cash flow through cycles. These include a highly variable cost model, strong backlog visibility, a high-quality and diverse client base, and a highly agile culture focused on profitable growth and cash conversion. In addition, our balance sheet is in a very strong position. 80% of our debt is fixed or capped over the next several years, and we have no bond maturities until 2027. We believe our balance sheet is a competitive advantage. Please turn to the next slide. Turning to our financial outlook, we expect organic NSR growth to accelerate in fiscal 2023 to approximately 8%, reflecting momentum in our backlog and across our markets. We expect adjusted EBITDA and adjusted EPS to both increase by 10% respectively at the midpoint on a constant-currency basis. The rapid rise of the US dollar will have a translational impact on our reported results. We expect NSR growth to be negatively impacted by approximately 400 basis points, including a more than 500 basis-point impact in the first two quarters of the year. We expect to deliver a 14.6% adjusted operating margin for the full year which represents a 40 basis-point increase from fiscal 2022. This would mark a new high and includes an approximately 10 to 20 basis point FX impact. Importantly, we are continuing to make growth investments to achieve our long-term target. We are also affirming our fiscal 2024 financial targets. As Troy noted, this includes outperformance on underlying NSR growth and profitability, which are within our control and includes headwinds from FX, which are outside of our control. We are increasing our return on capital target from 15% to 17%, which reflects strong profitability and the benefits of our return-focused capital allocation policy. Consistent with our approach, our guidance does not include any future share repurchase activity. With that, operator, we are ready for questions.

Thank you. And our first question today comes from Michael Feniger from Bank of America. Michael, please go ahead. Your line is open.

Thank you for taking my question. Regarding the targeted investments you're making in the Americas that have impacted the margin in the second half, can we expect margin expansion in 2023 in that region? Where are these investments, and what will contribute to improving the margin? Is it due to a growth increase, or is it related to a decline in investments? I’m trying to understand the pace as we look ahead to next year in the Americas.

Hey, Michael. This is Gaurav. I'll take that question. Our goal as a management team, if you just take a step back, is to deliver on sustained long-term value creation. The path to deliver that for us is to meet or beat every single target that we put forth today, while at the same time creating a competitive edge or expanding the competitive edge we have created on our platform for tomorrow, and margin is a perfect example of this competitive edge that we have created. This is where again, in FY22, we beat our target for the enterprise we have put forth while investing in the business more than we ever have. And the investment specific to your question, our business development opportunities and the abundant pipeline that we saw in front of us in the second half of the year, some of which we've already started to capitalize on, as Lara and Troy commented in the opening remarks. It also includes our digital capability, our PM and advisory services, which will expand the total addressable market that's available to us. And we have no interest in just growing. What we always will have interest on is growing with profitable growth. Profitable growth is always a focus of ours and this is where you step back and say, two-and-a-half to three years ago, when a lot of people thought we put forth a very aggressive target of 15% to deliver in 2014, is no longer a question mark. We will deliver 15% plus. FY '23 will be a continuation of that where we expect margin expansion as we put forth on the enterprise level, but also at both of the segments. And we're putting forth the stepping stones to what we want to deliver in the future, our mid to long-term target of 17% and then just to be redundant, what I've said before is, we're never going to be penny wise today and pound foolish tomorrow.

And Michael, this is Troy as well. I'll just make a couple of quick points here to be maybe a little bit more specific about this. As Gaur said, for us this is about balance. We're trying to create sustained growth and earnings, and that's a balance between growth and investing in the future. And this past quarter and frankly through this past year, there are a couple of things that give us that great opportunity. A few quarters ago, we talked about the increase in our pipeline and we said that it was in our pursuits, which is where clients are telling us about the things they are bringing to market. In this last quarter, we actually saw that move through our funnel, and there was a significant increase in the bids that we submitted and the proposals that we're investing today to bid on. That increased by almost 20% this last quarter. And so, again, that's an important investment in the future. And the other investment we're making is something like program management, where we said we would double the size of that business over a three-year period and we expected to grow that business 25% this year. Well, that business grew over 30% this year and has us well on track to double it in that two-year period and that's a very specific investment that we're making to deliver today but also build into the future. So again, I just think about it this way. There's not one thing that we're going to be doing but we're focused on finding that balance, which is continuing to invest in a business, while continuing to expand the margins of that business in the future.

Thank you. Troy, regarding the 2024 targets you presented, could you discuss any dynamics that are performing better than anticipated and any headwinds that are stronger than expected? It seems like foreign exchange might be one of those factors. Additionally, how should we view the foundation built in 2023 as we work towards the EPS target for 2024? Thank you, everyone.

Good question. When we established our strategy a few years back, we expected changes, and we certainly have seen them. There are several factors that have worked in our favor, as well as some that have posed challenges. Despite this, we have been increasing the business's earnings capacity. You mentioned foreign currency, which has been a challenge, particularly in the second half of last year, and we anticipate it will continue to be a challenge next year. However, our guidance does not primarily rely on this factor. Additionally, over the past two years, significant investment has flowed into the market to support long-term infrastructure. Throughout this period, we have maintained our focus on enhancing the earnings capacity of the business. In fact, when we exclude these variable factors, we have built our earnings capacity more quickly than we initially expected, which has given us confidence in achieving our long-term targets. I’ll now pass it to Gaur for more detailed information.

Yeah, Troy, you said it best. The targets we put forward in FY '24 is a dynamic model. There is not a singular path that we will take to achieve it. And as you noted, Michael, the key metrics, let it be NSR, margins, or a stepping stone ROIC, we're ahead on every single one of them compared to what we've built into that model almost two years ago when we unveiled it. Everything that is in our control is ahead, and things that are not in our control like FX is a headwind. Where FX would be 20 to 24 months from now? Your guess will be as good as mine. But at the same time, just being cognizant when we built that model, another dynamic piece to it is utilization of our very strong balance sheet that we have created, which we will continue to utilize for capital allocation purposes.

The next question comes from Andy Kaplowitz from Citi. Andy, please go ahead. Your line is open.

Good morning, everyone.

Good morning.

Good morning.

So, Troy, your total backlog is up but your contracted backlog is down year-over-year and sequentially, particularly in the Americas. Can you give us a little more color on what's going on and your expectation for contracted backlog heading into 2023? Have you seen any signs of slower awards in design? It doesn't look like you have and should we generally see sequential and year-over-year growth in contracted backlog from here?

Yeah, Andy. The answer is, yes. You will see a significant increase in contracted backlog from where we sat at the end of the year. And, I'll break the backlog down into the two components; our design business, which over the course of the year was up 8% and the fastest-growing part of that was in the Americas, and as we mentioned in the call, transportation. And so, we've seen some slowness in conversion of that backlog and then just gets to the, again, situation at some of our clients, which frankly are overwhelmed with the amount of opportunities that are out in the marketplace that they're managing. So that will just convert over time and that has been a little bit slower to convert than we had expected. With respect to our construction management business, remember, that business is a little larger and a little lumpy. And so, we have some awards that we received that had not converted by the end of the year, but I can say with a very high degree of certainty that they will be converted to contracted backlog in the quarter and you will see our contracted backlog growth significantly.

Thank you, Troy. I’d like to follow up on that. Can you provide more insight into the balance between the 8% growth in your design backlog and the double-digit pipeline you mentioned, especially considering markets like the UK? Regarding your guidance about 8% NSR growth, how much visibility do you have on achieving that revenue growth? How much does it rely on IIJA funding increasing in the US? Is the growth expected to be more weighted toward the end of the year? I understand you mentioned currency being front-end loaded, but what about organic growth throughout the year?

Okay, Andy. That was a lot. I'm going to give you a little bit higher level and then I'll let Lara give some more detail on this. You asked about a few markets. So, first of all, I would expect our NSR to grow in the same way that it has over the past few years, which is it's a little lower in the first half of the year and will grow in the second half of the year. And again, that gets to the trajectory of the backlog, but that also gets to what I described is in our pipeline. Things move through our pipeline, we hear from our clients what's going to come to market. It then comes to market. We submit the bids and proposals, which we've been doing this last quarter, and we will work through that in the first half of this year. There will then be the awards, and we will head to contracted backlog and will start to deliver it. So that will contribute to this next year. But nevertheless, we go into the year with 8% growth in our DCS backlog, which as we've always said is the best indicator of the future. And so, I will pass it over to Lara for a little bit more detail, in particular about the UK.

Yeah, thank you, Troy. And Andy, with respect to our UK business, it's a key part of our business. It did grow at 7% over the last year so, despite the changes in prime minister and some of the other headwinds that we've navigated, let's not forget, we had a very deliberate strategy a few years ago to secure key long-term positions on the UK framework. We have achieved that and that gives us confidence about the longer term, and there are some very key prospects that we're awaiting decisions on. But despite that, we closed the year with a 1.1 book-to-burn ratio for the UK. So we have a lot of confidence in that business in the long term.

I appreciate all the color.

Thanks, Andy.

The next question comes from Andy Wittmann from Baird. Andy, your line is open. Please go ahead.

Yeah, great. Thanks for taking my question. I guess when you guys set the original 2024 guidance, I guess, $430 million and then you raised it to $475 million, your stock was cheaper at the time and the free cash flow yield was probably in the high single digits and debt was cheaper than too. And so, your long-term targets were therefore benefiting much more substantially from the buybacks impact to EPS accretion than they can today with the stock being frankly just more expensive, as well as the debt being more expensive. So I was just wondering, if that changes your approach at all towards the veracity of your share repurchase plan or even your confidence in achieving the $475 million ‘24 guidance?

You're correct to note that as the stock price rises, it's important to be mindful of how we conduct share buybacks. To begin with, we established a goal of $430 million, which we've since increased to $475 million due to our growing confidence in the business. We maintain that confidence, which is why we are sticking to that target. We believe that the best way to allocate capital is primarily towards fostering organic growth, followed by returning value to shareholders through buybacks and dividends, and we will remain committed to that approach. Additionally, we do not plan to use debt markets for long-term borrowing as part of our capital allocation strategy, although we will keep an eye out for opportunistic chances. Moving forward, we have stated our intention to align our buybacks with our cash flow, and we expect to continue doing that while also seeking opportunities to accelerate our buyback activities, just as we did last year.

That makes sense. If you're funding the buyback entirely with free cash flow and the arbitrage is more favorable, that’s clear. I also wanted to inquire about the organic growth revenue guidance you provided today. There’s clearly some inflation affecting wage rates, which in turn may slightly increase the multipliers used to determine client costs. Can you help us understand how much of this is related to pass-through pricing compared to the actual volumes of labor hours delivered? It would be useful to get a clearer picture of the price versus volume dynamics in these figures. I recognize this can be complex, but this insight could really help us gauge the business's progress.

Hey Andy, this is Gaurav. In terms of your specific question as two hours versus rates, we don't provide guidance or breakout on each of those specific metrics. But overall, we are in a very strong position to manage our contracts, which in general, right, at any given point in time, we have 40,000, 50,000 contracts going on, average term is, call it, five to six months or less. So these are not long-burning contracts that allow us to price them appropriately and there is going to be some steel that we're going to leverage for or benefit in terms of increasing our hours by utilizing capability centers across the globe to deliver the work.

The next question comes from Steven Fisher from UBS. Steven, your line is open, please go ahead.

Hi, thanks. Good morning or afternoon. It's great to see the international margin nearing double digits. How much of that is attributed to the mix versus operational efforts or other factors? You mentioned centers of excellence, and I'm curious about the impact of larger programs, particularly in the Middle East. What are the key factors influencing the margins in international, and what do you envision for future growth?

Yes, this is Gaur. I'll take that question. International margins are a clear example of us realizing the strategy we have put forth, focused on winning the big transitional jobs that Laura pointed out to you early, while at the same time being very cognizant of running a very efficient and effective cost structure. So it's a combination of all those matters. And in terms of the market opportunity, I will turn it over to Lara to provide a little bit more clarity on it.

Yeah, sure. Steven, we are continuing to see a very strong infrastructure outlook. A good example of that would be the Australian market where we secured some key wins that we've announced at the end of fiscal 2022. There are another couple of big transformational transportation wins that we'll be able to announce in the not-too-distant future. And then the other great example is our work in the Middle East. Middle East most notably, Saudi Arabia up 33% in terms of NSR growth year-on-year. So the long-term outlook there for our program management capability and infrastructure generally is very strong. So a strong outlook and that's really the realization of our strategy, Think and Act Globally strategy.

Okay. And then, I wonder if you could just give us a little bit more specificity or breakdown of bridging from 5% NSR growth in 2022 to 8% in 2023. Any sense of what's the Americas design growth you expect for 2023, what's the construction management, international, any of those sort of bridge items to get that acceleration?

Yes, so Steve, maybe think about it this way. We did have strong growth in the international business this past year. And so, to actually have that expand at a significantly faster rate would be difficult. So, I think that's where we will have very good growth but in terms of a significant improvement, that's more difficult. But turning to our Americas business, in particular our DCF business, that's where we see there is a larger opportunity to grow that business in the future.

Can you quantify what the Americas design growth do you expect for 2023 then?

No. We're not going to refine that because when we look across the business, you make dynamic decisions all through the year about the things that we're going to take advantage of. So, again, I'll just describe it as a balance and we're not giving up a projection or prediction of what that would look like in each of the businesses.

Okay, understood. Thank you.

Yeah, thanks.

The next question comes from Sean Eastman of KeyBanc Capital Markets. Sean, please go ahead. Your line is open.

Hi team, thank you for taking my questions. Continuing on the revenue ramp discussion, we're increasing from 5% to 8% as Steve mentioned. Much of this ramp is driven by DCS, but it seems there isn't much tailwind from the IIJA this fiscal year. So, what I'm getting at is that it appears we will still have some momentum in the Americas design business as we head into next year, even with the significant funding tailwind not fully supporting the model. Is that correct?

I believe that's a reasonable assessment. We have noted an increase in our pipeline, particularly in our pursuits where clients are sharing their market intentions. In the last quarter, we witnessed movement through our funnel, resulting in a significant rise in the bids we submitted and the proposals we are currently investing in. This increased by nearly 20% in the last quarter. This investment is crucial for our future growth. Additionally, we are focusing on program management, aiming to double the size of that business over three years while expecting a 25% growth this year. That business outperformed expectations, growing over 30% this year, keeping us on track to achieve our two-year doubling goal. This is a strategic investment that supports our current operations and future growth. Overall, we are not concentrating on a single initiative but are committed to finding a balance between investing in the business and expanding its margins moving forward.

Okay, got it. That makes sense. And you guys highlighted reshoring of critical manufacturing as kind of a core mega trend, and it would be helpful just to get a little more color on how to think about AECOM's exposure around that trend in particular and what types of things are kind of entering the pipeline around that theme?

I would say that the trends are well understood by the analyst community, so I won’t elaborate on them. However, our exposure to these trends is quite broad. Through our buildings and places business, we have significant exposure as clients relocate and develop new infrastructure to address supply chain changes. Our exposure extends beyond that, as there is the planning we do upfront, which our business is part of, as well as the program management work we conduct throughout the process. Additionally, there is all the supporting infrastructure involved. For instance, many new facilities being constructed will require a substantial amount of water, and our water business is involved in that area. Considering a semiconductor facility under construction, the process takes a long time, and we engage in the permitting and program management aspects, alongside our buildings and places exposure. While we don’t work inside those facilities, as that work is proprietary to the manufacturers, we are nonetheless well positioned to benefit from these trends across our business.

Thanks a lot, Troy. I'll turn it over.

Okay, thanks.

The next question comes from Jamie Cook of Credit Suisse. Jamie, your line is open. Please go ahead.

Hi, good morning.

Good morning, Jamie.

I have a quick follow-up question. In your prepared remarks, Troy, you mentioned a 20% increase in bid prospects. I'm curious about the source of that increase. Is it due to market share, specific markets, or are you exploring additional markets that you haven't considered before? Any insights on that would be helpful. Additionally, regarding your 2024 targets, how confident are you in achieving those given your guidance for 2023? Should we assume consistent EBITDA growth in the high single digits, around 10%, and accomplish the rest by reaching EPS targets through stock buybacks? Thank you.

Sure, thanks Jamie. Regarding the question, the 20% growth is evident across our entire business. We have noted this as mentioned in the opening comments. It's occurring in North America, specifically in the US and Canada, as well as in Australia and the Middle East. We're seeing this trend throughout the business. Additionally, we have increased exposure to program management compared to two years ago. If you're looking for a change, our involvement in those markets has expanded. Therefore, a portion of that 20% growth can be attributed to our increased exposure to program management, which presents significant opportunities. Now, I will pass it over to Gaur for guidance.

Hey, Jamie. For fiscal year 2024, I want to emphasize that our model is dynamic and doesn't follow a single path. To illustrate, if we achieve low double-digit organic growth in fiscal year 2024, considering we're projecting 8% growth for fiscal year 2023 without significant benefits from IIJA, and if we reach our target of over 15% margins—of which we have complete confidence—this will align with our capital allocation strategy we've integrated into our model to reach $475 million, despite facing notable foreign exchange headwinds that are outside our control. Additionally, I want to remind you that our fiscal year 2023 EPS guidance does not include any share repurchases beyond what has already been executed in fiscal year 2022.

Thank you.

Thanks, Jamie.

The next question comes from Michael Dudas from Vertical Research. Michael, your line is open. Please go ahead.

Good afternoon, gentlemen and Lara.

Good afternoon.

Good afternoon.

Troy, could you provide us with more insights on your federal business? I've been observing its growth, but is funding and access a concern compared to the complexities you're encountering in transitioning from federal states to the projects in the pipeline? Additionally, regarding construction management and the recent increase in interest rates, what is the current sentiment among developers? You mentioned some contracts will be converting in the next few quarters. Is there a positive momentum building, or are there concerns regarding opportunities for 2024 and 2025 due to the funding challenges we've seen in the market?

We've made significant progress in our US federal business, particularly with large, valuable programs where incumbents have been seeded. This progress gives us confidence moving forward. A key factor is the contract vehicles or IDIQs we've secured, which have greatly increased our capacity over the past year. Currently, we have over $100 billion in IDIQ capacity, enabling us to maintain ongoing discussions with federal clients for project work. While our clients, like us, are facing challenges in managing their goals, we expect this will create strong long-term opportunities with these IDIQ programs. Regarding our construction management business, we've noted that some non-traditional development investors have decided not to move forward with projects recently, but we have not experienced a decrease in our own quarter's performance. Our construction management business is now more diversified than in the past, with significant exposure to aviation, convention centers, government buildings, and sports facilities. This diversification reduces our dependency on commercial office and mixed-use development. Additionally, we currently hold 3.5 years of backlog in this sector, ending last year with a book-to-burn ratio of one, which comprises about 8% to 9% of our overall business. While it's a contributing factor, it doesn't match the significance of our design business. Despite some market turbulence, our construction management segment is well-positioned for the future.

Thank you, Troy.

Yeah, thank you.

The next question comes from Adam Thalhimer from Thompson Davis. Adam, please go ahead. Your line is open.

Hey guys, congrats on a solid Q4.

Thank you, Adam.

One more if you will on the IIJA, in terms of not coming as fast as expected, was that a transportation comment, because I feel like some of the water and wastewater opportunities are starting to flow through, curious on that?

Actually, Adam, it's quite broad-based. Some aspects of the IIJA funding have come through faster than others, and water projects are certainly one area that has a more direct path to market compared to transportation projects. Transportation usually involves another agency, which means it needs to be coordinated with a local or state government agency. That being said, we have observed this trend across all of our business lines, with a slower market introduction overall. As I've mentioned, it's challenging for us to distinguish whether the projects we are bidding on are solely IIJA-related or not. It is fair to say that the increase in our pipeline is largely influenced by the IIJA, but the rollout has been slower than many anticipated when the bill was initially passed.

Got it, okay. And then, lastly, wanted to ask on the $30 million to $40 million of restructuring expenses next year. Can you talk about what investments you're making there and what that benefit long-term is for a AECOM from those investments?

Hey, Adam. This is Gaurav. I'll address that question. We are consistently committed to achieving profitable growth in our business while remaining aware of markets that may not satisfy our criteria for returns on invested capital, margin profitability, and cash conversion. If certain markets do not meet these standards in the short, medium, or long term, we will reduce our involvement in them, and we will always strive to provide the best possible returns on investment for our shareholders. A prime example of this is our increase of the ROIC target from 15% to 17%. These modest adjustments and reductions have resulted in improved working capital conversion, enhanced profitability, and better growth, all while concentrating on regions and markets that have solid long-term fundamentals to support our growth strategy.

Okay, good answer. Thank you.

Adam, thank you.

We have no further questions at this time. So, I'll hand it back to Troy Rudd for concluding remarks.

Thank you. I will keep this brief. As I mentioned earlier, we had a successful year and feel positively about the business outlook, as we are engaged in long-term investment trends in infrastructure. We have developed a business that offers a sustainable competitive advantage, and we have a higher-returning, lower-risk business model. As Gaur highlighted, we continually seek ways to refine and enhance this model. In the event of challenging times ahead, it’s important to note that 90% of our costs are variable, providing us with a solid foundation for the future. I want to conclude by expressing my gratitude to our teams for their contributions over the past year. The collective efforts of all our employees have led to our strong results, so thank you all, and thank you everyone for joining today's call.

This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.