• Net Service Revenue (NSR): Increased by 5.5%, with the Americas segment showing a 9% increase in the design business.
• Segment Adjusted Operating Margin: Increased by 40 basis points in the Americas, exceeding annual guidance.
• Adjusted EBITDA: Rose by 8%.
• Adjusted EPS: Increased by 25%; 14% increase after adjusting for tax rate variance.
• Free Cash Flow: Increased by 28%.
• Shareholder Returns: $55 million returned through repurchases and dividends.
• Design Business Backlog: Increased by 5%, with a 7% growth in the Americas.
• Book-to-Burn Ratio: 1.2 in the design business, marking the 17th consecutive quarter above 1.
• International Segment Revenue: Increased, with high single-digit growth in the Middle East.
• Adjusted Operating Margin (International): Increased by 20 basis points to 10.8%.
• Capital Allocation: $55 million returned to shareholders; focus on high-return organic growth investments.
• Fiscal 2025 Guidance: Increased midpoint for adjusted EBITDA and EPS.

• Warning! GuruFocus has detected 6 Warning Signs with PINC.

Release Date: February 04, 2025

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

Positive Points

• AECOM (NYSE:ACM) reported a 5.5% increase in net service revenue (NSR), slightly ahead of expectations, with the Americas segment showing a 9% growth in the design business.
• The company achieved a 100% win rate in its largest and most strategic pursuits, reflecting strong technical expertise and market position.
• Adjusted EBITDA rose by 8% and adjusted EPS increased by 25%, with a significant contribution from a lower tax rate.
• AECOM (NYSE:ACM) has a record backlog and pipeline, with a 5% increase in design business backlog and a 7% growth in the Americas.
• The company is investing in its Water & Environment Advisory business, aiming to double its revenue in the next three years, and has already reached several key milestones.

Negative Points

• The lower first-quarter tax rate, which contributed to the EPS increase, was due to timing of items and is expected to normalize in the following quarters.
• Revenue growth in the International segment was varied, with certain markets like transportation in the UK remaining lower.
• The company faces foreign exchange rate headwinds, which have moved against them so far this year.
• Despite strong performance, AECOM (NYSE:ACM) acknowledges potential disruptions from temporary funding freezes or reviews, although they expect these to be negligible.
• The company is making significant investments in business development and digital transformation, which could impact short-term margins.

Q & A Highlights

Q: Can you discuss the visibility of NSR growth throughout the year and how recent funding freezes might impact your pipeline? A: Despite recent headlines about funding freezes, we see no material impact on our business. Our backlog and pipeline continue to grow, reflecting strong alignment with global infrastructure objectives. We expect NSR growth to ramp up in the second half of the year, driven by opportunities in our pipeline and backlog. (W. Troy Rudd, CEO)

Q: What factors are driving growth in the Americas, and how is it balanced across sectors like water, transportation, and facilities? A: Growth in the Americas is broad-based across transportation, water, environment, energy, and buildings. We have built a balanced business aligned with long-term infrastructure investments, allowing us to capitalize on diverse market opportunities. (W. Troy Rudd, CEO)

Q: Can you elaborate on the investments being made in the water and environment advisory business and their impact on growth? A: We are ahead of key milestones in our Water & Environment Advisory business, with strong talent acquisition and a growing pipeline. This sector presents significant white space and adjacencies, and we expect it to be a high-margin growth accelerator. (Lara Poloni, President)

Q: How do you view the growth potential of your program management business, and what are the key drivers? A: Our program management business is growing at a double-digit rate, now accounting for 16% of our NSR. We aim for a 50-50 split between design and program management/advisory, exposing us to more client budgets and driving high win rates. (W. Troy Rudd, CEO)

Q: How are you approaching digital transformation and AI investments, and what impact do you expect on margins? A: We are investing significantly in digital transformation and AI, which we expect to reduce effort in delivering work by 5% to 15%. These investments are crucial for enhancing our design and engineering delivery, ultimately improving margins. (W. Troy Rudd, CEO)

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