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Q & A Highlights

Q: Can you discuss the visibility into the expected double-digit EBITDA growth in the second half of the year? Is it more top-line or bottom-line driven? A: Troy Rudd, CEO: The growth is expected to be balanced between top-line and bottom-line. We anticipate continued revenue growth, as our contracted backlog has grown mid-single digits. We have seen healthy wins in the quarter, and our pipeline is at a record level, providing visibility into future quarters. Additionally, we see room for margin improvement due to past investments.

Q: Are the isolated delays and disruptions in projects resolved, or do you expect them to continue? A: Troy Rudd, CEO: We have confidence that we have a handle on the delays, though they may continue due to changes in administration and personnel. These disruptions are primarily in the Federal government sector, which represents about 8-9% of our NSR, and are not widespread across the entire business.

Q: How is AECOM tracking towards the 10% free cash flow margin on net service revenue for 2025? A: Gaurav Kapoor, CFO: We aim to maintain the 10% free cash flow conversion milestone achieved last year. Our focus is on achieving 100% plus free cash flow conversion of adjusted net income, and we are confident in meeting this target for the full year.

Q: Can you provide insights into AECOM's private sector exposure and the confidence level in this area? A: Gaurav Kapoor, CFO: The private sector represents about 30% of our business and grew in the quarter. Two-thirds of this is water and environment-related, driven by regulatory requirements and OpEx for large public utilities and global ONG majors. The remaining design business is less cyclical, focusing on facilities like ports and airports, with some funding from the public sector.

Q: What are AECOM's perspectives on share buybacks and capital allocation given market volatility? A: Gaurav Kapoor, CFO: There is no change in our capital allocation strategy. We will continue to execute our strategy, with share repurchases consistent with the free cash flow we generate, which is generally second-half weighted.

Q: Can you elaborate on the strong margin performance in the Americas and the factors driving it? A: Gaurav Kapoor, CFO: The 130 basis points margin improvement in the Americas is due to organic investments over the past few years, such as our program management and advisory business initiatives, and the use of enterprise capability centers. These investments have driven efficiency and improved pricing and margins.

Q: What are the expectations for International margins for the full year, and is there potential to adjust long-term margin targets? A: Gaurav Kapoor, CFO: We expect International margins to continue improving, supported by investments in our people and operations. Regarding long-term targets, while top-line growth can be challenging, we focus on competitive advantage and value creation, which may lead to slower top-line growth but better margins.

Q: How is AECOM managing the transition in its Construction Management business, and what should be expected in terms of gross revenue? A: Troy Rudd, CEO: We are repositioning the Construction Management business to focus on different types of work, leading to a temporary decline in gross revenue as we burn off backlog. As we rebuild the backlog with quality projects, gross revenue will improve over time.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.