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Text: References to margins and adjusted operating margins reflect the performance for the Americas and International segments.
We will refer to net service revenue or NSR, which is defined as revenue excluding pass through revenue.
As a reminder, we sold the Management Services business in January 2020 and we sold the Power and Civil construction businesses in October 2020 and January 2021 respectively.
The financial results of these businesses are classified as discontinued operations in our financial statements.
Lara Poloni our President, will discuss key operational 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.
I'd like to begin by acknowledging the continued great contributions of our teams globally.
In many parts of the world, day-to-day activities are beginning to resemble normalcy.
However, the pandemic and its variants continue to impact our teams and their families.
Against this backdrop, I'm proud of how we are collaborating to deliver for our clients and communities.
As the COVID-19 variant spread, we all need to remain agile until we reach a point where the threat from the virus is eliminated.
We have the best teams in the industry and our focus remains on keeping our people safe and enabling them to be successful in their careers.
Turning to a discussion of our performance.
Four themes are apparent across our business.
First, our third quarter results, extend our track record of delivering on our financial and strategic commitments.
And with our strong year-to-date performance, we are increasing our guidance for fiscal 2021 and we are increasingly confident in delivering our long-term financial targets including doubling adjusted earnings per share from fiscal 2020 to fiscal 2024.
Second, the success of our Think and Act Globally strategy and investments in our people and innovation are contributing to accelerating growth.
In fact our design business that accounts for approximately 90% of our profit, organic NSR, and backlog growth are at the top of the industry.
And our strengthening pipeline pretends well for continued leadership.
Third, we expect to deliver strong results into the future, built around secular growth themes centered on infrastructure and ESG-driven opportunities.
With our increased focused on advisory and Program Management, we are engaging with clients much earlier than their planning for large investments and we are advising them through the execution, which expands our addressable market.
And finally, we remain committed to creating shareholder value by investing in growth and innovation and enhancing per share value by allocating substantially all available cash flow to share repurchases.
We believe these are the highest returning uses of capital as compared to large scale M&A were today's deal multiples are elevated and the execution and integration risks are higher.
Turning to our results.
We exceeded our expectations on every key measure.
NSR increased for second consecutive quarter including accelerating growth in our design business.
In addition, backlog in the design business increased by 8% and included 7% growth in contracted backlog, which is a leading indicator of revenue growth.
Our adjusted operating margin reached a new high this quarter at 14.1%, an increase of 90 basis points from the prior year.
With this outperformance, we now expect to exceed our margin guidance for the full year.
This performance includes growth in higher margin projects and efficiencies in how we deliver and is creating the capital to invest in our teams and innovation.
As a result of this revenue and margin performance, adjusted EBITDA increased by 15% and adjusted earnings per share increased by 33%.
We are also continuing to convert our earnings to strong cash flow.
We delivered the highest third quarter and year-to-date free cash flow in four years.
And consistent with our capital allocation policy, we repurchased approximately 12% of our shares outstanding as compared to last September when we began our repurchase program.
Turning to our backlog and pipeline.
Funding across our markets is improving and our investments in growth are bearing fruit.
We delivered $3.7 billion of wins and we had a greater than one book to burn ratio for the enterprise for the first time since the pandemic began.
With the strong performance, backlog in the construction management business increased sequentially, albeit modestly for the first time in several quarters.
In addition, our pipeline of opportunities in our Americas design business has increased by double digits since the beginning of the year and the international pipeline increased by single digits.
These are great signs for the health of our markets and the success of our strategy.
The strength is before any material contributions from previously enacted stimulus funding and we do not include any benefit in our guidance from the proposed infrastructure bill in the US.
Please turn to the next slide.
Our accomplishments reflect the benefits our Think and Act Globally strategy and our focus on growth.
Over the past several quarters, we have prioritized investments in growth markets, simplified our operating structure and eliminated inefficiencies.
Today, we are a more agile organization and we are benefiting from stronger collaboration across the business.
We've also invested in our key account program to ensure we deploy the best practices to all of our clients.
This will be critical to outgrowing the industry.
All these efforts are resulting in strong NSR, backlog and pipeline growth.
Another key component of our strategy is leveraging our industry leading margins to invest in our people and innovation.
Demand is accelerating in the majority of our largest markets and AECOM and others in our industry will be increasingly challenged to attract and retain the strongest talent.
In fact, our growth this past quarter was constrained in some areas by the pace of hiring relative to increased demand.
And what is noteworthy is that this constraint is apparent even as our pace of hiring has doubled as compared to last year.
As a leader in our industry, we have certain advantages against this backdrop.
First, our workforce is global and we can draw on this global expertise to deliver anywhere in the world due to the investments we've made in technology to enhance collaboration.
Second, we also invest in professional development programs so our people can grow within AECOM.
Third, we are using technology to extend the capacity of our teams and to deliver a new and innovative ways.
And finally, we've implemented flexible work policies to provide our people even greater freedom to deliver for their clients in ways that work best for them and their teams.
All of these efforts are centered on creating a culture where the industry's top talent can begin and build meaningful careers.
As we look ahead, several trends support our confidence in growth.
First, we are winning and delivering critical projects that highlight our strong position in key growth markets.
Most recently, these include the first ever digital need for compliant environmental impact statement for a transportation client in the US, showcasing our investments in innovation and digital solutions.
Additional wins with major metros to advance more modern and equitable transit systems, key wins to advise clients on their long-term sustainability and resilience strategies, key wins in next generation energy, a smaller but rapidly growing practice within AECOM that includes a presence in the Northeast offshore wind market.
Wins in the healthcare sector that further broaden our client base and large program management wins from multi-billion dollar programs across the globe.
Second, through our sustainable legacy strategy and commitment to ESG, we are distinguishing ourselves in the market as our clients' advance complex, multi-decade initiatives.
In fact, year-to-date there have been a record number of corporate commitments to emission reduction targets, outpacing last year's total already.
And sustainable bond issuances are at an all time high.
AECOM is a leader in advising clients and delivering technical solutions to support ESG goals.
Today, we estimate approximately 70% of our revenue is directly related to ESG initiatives while nearly all of our revenue has at least some ESG element as a driver.
We are leaders in green advanced facilities design, energy efficiency, next-generation energy, sustainability, resiliency, environmental remediation, clean water systems and transit electrification.
Our services in these markets are in high demand and our leadership in these fast growing markets underpins our confidence inorganically outgrowing the market well into the future.
Finally, our public sector clients across the world are benefiting from strong budgets and investments in infrastructure markets where we lead.
In the US, strengthened state and local tax receipts, strong federal funding and ongoing stimulus measures are contributing to an improving environment for growth.
Similarly, our international markets are prioritizing infrastructure investments especially in our largest end market, transportation.
In Australia, the New South Wales government has advanced $130 billion package for four years of transportation spending.
Well, in Canada, there is more than $20 billion of public transit and green infrastructure spending.
And in Europe, the $1 trillion recovery fund requires 30% of spending to be dedicated to green and sustainable infrastructure.
These initiatives are before you factor in a potential US Federal Infrastructure Bill in our largest market.
As currently proposed nearly every line item in the current draft would be addressable by AECOM.
In conclusion, I want to remind, we are the Number one transportation design firm, the Number one facility design firm, the Number one environmental science and environmental engineering firm, have grown to Number two in water and lead in several other end markets all positioned for secular growth.
No firm is better positioned to capitalize on these opportunities.
Please turn to the next slide.
We are building momentum within the business as a result of our strengthened culture and strategic alignment.
One area where this is apparent is in growing demand for ESG-related services.
In April, we launched our Sustainable legacy strategy to ensure we embed sustainability and ESG into all elements of our business.
This included our commitment to achieving Science based net carbon zero by 2030, expanding diversity and inclusion across our company and advancing the impact we can have on the world by embedding carbon reduction principles into our work to clients.
Since launching Sustainable legacies, it has been exciting to see how passionate our people are to create a positive impact in their communities and what it means for us in the market.
For example, we were awarded a sizable transportation project in the quarter to modernize the transit line for clients in the US.
The ultimate determining factor in our selection was our Sustainable legacies strategy and the community building and ESG elements of our proposal.
This success underscores how we are of building stronger, competitive advantages.
We continue to advance our Think and Act Globally strategy to ensure we focus on the highest growth and margin opportunities while investing in our people and innovation.
With demand for our services is increasing, we are focused on bringing new talent to AECOM and investing in our teams to create the culture Troy spoke about earlier.
Going forward, we are focused on ensuring we have the strongest workforce, which will be critical to recapturing the full benefits from increased demand.
We also continue to make investments in our digital platforms and services to extend capabilities and enhance our teams productivity.
We can deploy innovation at scale to enable our people to use their hours most productively for their clients.
We already have several hundred digital consultants within AECOM that are helping clients progress their own digital transformations.
This is all part of the more than 1,000 digital practitioners we have across AECOM working to ensure we remain an innovator in our industry.
A great example of this is our plan engage platform that has enabled the first ever NEPA compliant and fully digital environmental impact statement in the US.
Our solution streamlines engagement process and provides higher value services for our clients.
Our investments in these digital solutions and innovation will continue to be key differentiators as demand accelerates.
Importantly, we know we are headed in the right direction as our people and our clients are responding favorably.
I am pleased to report that our client satisfaction scores reached the highest level in our company's history this quarter.
And I have no doubt that this will translate into a continued high win rate and growth going forward.
Please turn to the next slide.
Our third quarter results reflect another quarter of strong performance.
Revenue increased and included accelerating growth in our design business.
Our pipeline and backlog grew, margins reached a new high and continued to lead the industry and earnings increased by double digits.
Our year-to-date performance is at the upper end of the industry.
And looking ahead, our strategy inspires confidence that we will build on this lead.
I want to touch on the margin performance.
Compared to our fiscal 2018 margin, our third quarter segment adjusted operating margin of 14.1%, marks a 540 basis point improvement.
With increased delivery of higher margin work and our operational improvements, we expects to exceed our prior 13.2% margin guidance this year and we are confident in delivering our 15% by 2024 goal and longer term 17% aspirational target.
I'm equally pleased to report that we have delivered more consistent cash flow phasing.
This was a real focus of ours this year, and the organization has responded.
As a result, we already have been able to deploy substantial capital toward share repurchases and continue to take actions that improve our cost of debt and extended the duration of our debt maturities well into the future.
Please turn to the next slide.
In the Americas, design revenue increased for second consecutive quarter.
Total NSR declined slightly due to expected decline in Construction Management business, where we saw the deferral of a number of projects over the past 18 months.
However, this trend is improving as evidenced by our sequential backlog growth and growing pipeline of pursuits.
Importantly, backlog in the Americas design business increased by 8%.
Our investments in the development [Phonetic] are translating to a higher win rate on our work and our pipeline also increased by double-digits at start of the year.
Adjusted operating margin was 18.9%, a 100 basis point increase from the prior year to a new high.
Profitability in both the Americas design and Construction Management businesses was strong.
Please turn to the next slide.
Turning to the International segment.
Our NSR increased by 7%.
Our adjusted operating margin in the third quarter was 7.3%, a 160 basis point improvement from the prior year and more than 500 basis point improvement since the beginning of fiscal 2019.
This progression provides us confidence in our ability to achieve double-digit International margin target.
Please turn to the next slide.
Turning to cash flow, liquidity, and capital allocation.
Our third quarter free cash flow of $295 million marked the highest level in four years, putting us on a strong path to achieving our full year guidance of between $425 million and $625 million.
With our strong cash flow, we have executed stock repurchases at attractive prices.
Since September 2020, we have repurchased $930 million of stock, which represents nearly 19 million shares or 12% of our starting share balance.
In addition, we have strengthened our balance sheet through a number of actions taken to lower the cost of our debt and extend our maturity.
During the quarter we completed the tender and redemption of all 2024 senior notes.
We now have no maturities until at least 2026 and are operating with a high degree of financial certainty while driving a benefit to the bottom line.
Finally, while we have incurred costs related to the tender and redemption of the 2024 notes, the NPV of the transaction was very positive and accretive to earnings per share.
Please turn to the next slide.
With our year-to-date outperformance, we are raising our adjusted EBITDA guidance to between $810 million and $830 million or a 10% growth at the midpoint.
We are also increasing our adjusted earnings per share guidance for the full year to between $2.75 and $2.85 or 30% growth at the midpoint.
This is the third increase to our earnings per share guidance this year, despite the challenges posed by the pandemic and associated macroeconomic trends.
Our teams are [Indecipherable] this guidance does not contemplate any additional repurchases, although it is our plan to continue to buy back stock.
Finally, I should note that our fourth quarter comparisons will be impacted by the extra week we adjusted out of our growth rate in the prior year's fourth quarter.
This impact should be considered when modeling and analyzing year-over-year growth trends for the coming quarter.
An extra week is approximately 7.5% of our quarterly NSR.

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q3 revenue increased by 7% to $3.4 billion.

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