AECOM (ACM) Earnings Call Transcript & Summary

Hello again, Andy Kaplowitz. So we are very excited to have AECOM with us today and particularly excited to have AECOM's CEO, Troy Rudd. I've known Troy for over 10 years now. He's had a series of operational and financial leadership roles at AECOM. And starting in 2009, he was the CFO before he was the CEO. And prior to joining AECOM, he was a partner for 10 years at KPMG. So with that, Troy, I know you have a couple of remarks you want to make. So I'll turn it over to you, and then we'll get into Q&A.

Great. Thank you. So I thought maybe I'd just take a few minutes because it's been a few years since I've actually been in person with anybody.

Love it then. I'm the first -- right.

Since I've been in person as the CEO of the company, and I just thought I'd take a few minutes to remind everybody a little bit about AECOM. So first of all, AECOM is about 50,000 engineers, designers, planners, architects, construction managers, program managers, really, it's people with great scientific backgrounds. And we're a purpose-driven entity. And that sort of really binds the group together. People come to AECOM because they really do want to change the world, and we have our tagline, which is building a better world. And it's important because that's the purpose that drives people to our organization and keeps them there, and that's changed. In the past, we're always just building physical infrastructure. And today, there's people who are even more passionate about it because they have the opportunity to drive some very different outcomes, whether they're environmental outcomes or whether they're social outcomes. And so that's become even more important for us being a purpose-driven entity. Over the last few years, we've become more focused as a professional services organization. And I'll just say there's 3 things that I'd highlight about the organization at the moment, which number one is, we've built an organization that's winning work at a really high rate, at a higher rate than we've ever had in the history of the company. And it's different because it's not just winning work, it's winning the work that we think really matters or makes a difference to our organization. The second thing is we've been building some new businesses. We were typically a design business, and we looked to expand that so that we're -- become part of the project team earlier in the process, longer in the process. and do more than just design. So we built an advisory business, and we've had a program management business, but we've been investing heavily for the last 2 years in building out that program management business with the goal of having it grow so it doubles in size in 3 years. And we're on track to do that. So what that means is we've got this great opportunity in front of us where there's a lot of money being put in infrastructure around the world and putting aside the Bipartisan Infrastructure bill, but a lot of money going into infrastructure. We're winning that at a high rate. But more importantly, we've built a business that doesn't just have us exposed to doing the design work. We're exposed to something that's now a multiple of that project work. So it creates a much greater opportunity for us to move forward. And then the last point about this is we've invested heavily in building digital technologies and platforms to change the way we deliver our business and actually deliver different services. And so the reason we've had to build this so that we can deliver our work differently is because our industry has typically been an hours industry. It's the hours of designers and engineers that are going to projects, but we're constrained. As an industry, we're labor constrained, it's not something -- you can build a new engineer overnight. It takes a long time to do that, to be capable to work on the projects. So we've used digital tools to take our people's time and create more capacity. The idea being that you can deliver the same amount of work in -- sorry, you can deliver -- use the same number of hours, but you can deliver significantly more work because we're using digital tools to do that. So all of that's manifested itself over the last 6 or 7 quarters where we moved to a business where we're growing organically. We set targets for ourselves, and we've been delivering on them and we've adjusted them upwards a little bit incrementally and continue to beat those. So we have a business that's executing. And then the last point I'll make is we're a little different in terms of how we allocate capital in our industry. Our industry and we in the past have been a set of businesses that typically are acquisitive and do large acquisitions. And we've chosen that this isn't the right thing for us. We take our capital and we invest it in organic growth, which means we're investing in our people, in our clients and building our portfolio, in our digital technologies and innovation platforms. And then beyond that, we're returning capital to shareholders. And we've been doing that for a while. We've -- since September of 2020, we've acquired 14% of the stock of the company that's been outstanding. And then we just recently announced that we'll start paying a dividend, and we'll grow that dividend at a double-digit rate. And that was important because it signaled a change in our business to a business that's lower risk, it's growing profitably. And we convert profits to cash at a very consistent rate, and we thought it was time to provide the example of our confidence in that business and permanently return capital to our shareholders beyond just buying back stock.

Great stuff, Troy. So just a reminder to the audience, I see a couple of questions where you just scan the QR code and you can ask us questions. So just in response to sort of your preamble, Troy, let me ask you, a lot of great things that you've done here over the last few years. But if you had to sort of highlight, you've been the CEO for 1.5 years, sort of what one or two things sort of stand out in terms of what you've changed versus the previous regime, which you would kind of a part of?

Which -- yes, I mean I had a small hand in it. I guess, first of all, there was a lot of work to transform the business. We really -- we're a diversified business, and we had a very significant construction portfolio, and so transforming the business was -- in a really important step to get to where we are now, which we are focused consulting business. So we can be focused on that. Second thing was we have amazing professionals in our business. And if I just sort of speak about our business as the assets of the business were underutilized. We weren't performing at a level that we should have been for a business that has people as capable as we have in our business. And then the big thing was I made a fairly dramatic change in terms of the leadership team, but that was important because that allowed me to change culture. And the most important thing, I think, that we benefited from is changing our culture. So we really are focused on being collaborative, focusing on innovation and creating a different level of execution and accountability than we had in the past. And so those were important things. We had great business, great people in the business, but we got it to focus. And being collaborative may sound a little cliche, but it's incredibly important because in our business and the way our peers compete against this is they go into a local market and a local team will compete on a project. And for the things that really matter or big, we changed that. We go to our global network and bring the best that we have to offer in the company to compete against our peers who are competing locally, and it's made a huge difference in winning. And that sounds simple, but it's a transformative change because you have to change leadership, beliefs, culture and operating structure to do that. And they may sound like they're simple things, but they're tough things to do when you're talking about 50,000 people.

So maybe you can talk about -- you kind of alluded to this, but maybe you could talk about, one of the criticisms of AECOM over time is that you just don't really grow. And if I look at your revenue, it's kind of flattish over the last few years since you've taken over. And so maybe talk about why that's not the right way to look at the company?

Well, I would say that there's a different -- there's difference to the quality of revenue that companies have. And so we had to go through a period where we had to grow revenue that was better quality revenue, and we had to exit some businesses and we had to effectively eliminate some of the revenue that wasn't great quality. It didn't fit with the profile of the business. So what you -- when you look at our business, the first -- so over the last 8 quarters, for 4 quarters of that or 3/4 of that, we didn't grow. It looked like we didn't grow. But what you didn't see was inside, is that we were growing the better revenue, and we were very intentionally shrinking the revenue that didn't contribute. And that's why you've seen our margins go to now where they're the best in the industry. In the last 5 quarters, now we've exposed organic growth, and so we started to grow organically and see that pick up. And even while -- we're still doing that work of improving the quality of the revenue. And so that's a little bit. So even when you look at our growth, last quarter, it was 5% or the previous quarter, it was 6.5%. We did a little better than that on growing the good revenue, but it's masked because at the same time, we're moving some of the stuff that we don't need in the portfolio.

Got it. And Troy, like focusing on sort of that revenue and margin, like if you look at sort of the labor market while we get the question about, can AECOM get enough engineers? I know you're hiring. Is there skilled labor out there? So how do you sort of address this to people as the infrastructure cycle ramps up? Can you find the skilled engineers? Is wage inflation good or bad for you?

So I'll deal with the last question first. Wage inflation is, at the moment, not bad for us because the nature of our business is we're able to pass it along to our customers. We have, again, our contract vehicles, building escalations to pass that along. And then the market, as it continues to adjust for wage inflation, we pass those costs along to our customers. It can be bad if those costs become so great that it changes people's investment decisions, so our customers' investment decisions, we're not seeing that. There's, in fact, so much funding that's coming into infrastructure and so much money that is available to come in infrastructure that we're not seeing even the increase in commodities prices or wage inflation. At the moment, it's not influencing those investment decisions. And I don't think it will because a lot of the work that we do is funded by government and government agencies, and they don't seem to be as sensitive to cost to make those investment decisions. With respect to labor, it's a challenging labor market. It really is. But if I look at the pool of the engineers and scientists and designers and I think, first of all, because of the fact that we are AECOM, we have the ability to disproportionately hire better than some of the other peers that have been competing for that talent. And then the second thing is we've made a huge investment in our people to create a great place to work. So we keep the really important turnover down, right, our outstanding performers. And we've invested in leadership development, technical development. We've built our benefits programs. We've moved to a flexible work environment, which has become incredibly important. It's allowed us to keep people in the workforce that might have left. It's also allowed us to create an advantage because people would like to remain in that competitive -- or in that flexible workforce. So it's not remote. We're flexible. And we're seeing people come into the office about 2, 2.5 days a week. So we're doing those things to attract talent. But then the most important thing we're doing is building capacity, and I talked about this as our investment in digital tools. Means that people will actually spend less hours doing the same amount of work. So we increased the capacity. So we don't have to add people. We can grow the capacity of our existing labor force. And then we're building -- we've already built, but we're building up more of our enterprise capability centers. So think about this. We have people that will do certain types of work and do it really, really well. So instead of, for example, someone in Dallas doing that bridge design, it goes into a capability center. So it might take that first 100 hours. Those people that do it a lot, become really good at it, and they can do it in 80. So we're attacking it in different ways. One is we're making sure we keep the really good people. We're doing -- investing in our workforce to attract more people, and we're looking to expand the capacity of what our people do.

Troy, you alluded to this a little bit, but like if I -- one of your infrastructure and design peers talked about sort of the CR may be impacting state and local decisions, even though it's the federal government, right? So are you seeing any of that uncertainty impact your customers? And if so, I guess is just a modest nuisance all year? Or how do we think about it in terms of your growth?

Well -- so our -- the bulk of our clients in the United States are state and local agencies. They have surpluses and they have their defined ambitions, and they have funding for it. So we're seeing money come into those projects. A great example is in New York City, is there's a few hundred -- almost a few hundred billion dollars with 5 agencies that are going to be invested in a lot of transit projects in the New York, New Jersey area. That's independent of the federal funding. So that's -- that is happening. Then you layer on top of that, that there is some federal funding that has to support some of these projects. And because the federal government doesn't have a budget stoppering under the continuing resolution, no new money can come to support some of those projects. So we've seen some awards where there's been a delay. And so those delays, they're sort of being pushed out to the right until the funding can come from the federal government for their piece of those projects. So we are seeing some of that. And then with respect to the Bipartisan Infrastructure bill, because we're under a continuing resolution, there's no real money that's been appropriated to support that. And so the hope is that if we get -- maybe later this month, there will be a budget, some funding will be put in place that will then allow us -- those projects have been pushed to the right to get back on track, some funding for the Infrastructure bill. And then hopefully, we get on a cycle where next September, we get a federal budget that really puts the appropriations or the funding behind the infrastructure bill.

Troy, maybe we can talk about what's allowed you to keep up growth then while there's still a little bit of this funding uncertainty out there. And one of the things I've noticed, right, is that you talk about win rates being something like 50% recently. And I remember AECOM always kind of talking about like maybe 30%, 40%.

Yes.

So are those numbers true? And sort of what has achieved to allow you to win more? Is that why your growth is staying reasonably high?

So our win rate has grown over the last 2 years from the high 30s or low 40%. So what that means is of every dollar we bid on, we're winning 40% of that work. We've seen that over the last years just steadily increase. And I thought last quarter, when we were around 46%, I thought that was a great number. But we actually saw the momentum continue to build. And those last quarter, we won 50% of everything we bid on, which is an extraordinary number. I see us winning at a high rate. I don't know if it's 50% or 45%, but I see us winning at a much higher rate as we move forward. And it gets to those changes. The underlying changes I talked about before was we are really focused on what we think matters. And then we take the energy of the organization, so it's the people and resources and we devote it to those opportunities, and we're winning those at a much higher rate. So the stuff that sort of happens locally, that's still continuing because we have a lot of work that we do with clients, that we've done with those clients for a long period of time. But it's the bigger projects that kind of are more meaningful longer term where we've attacked them globally instead of locally has made a difference in our win rate. And then you layer on that some of the things we do in terms of innovation. We're just creating some competitive differentiation in winning work.

So related to that, I should ask you, your multiple has rerated some, but it hasn't been rated to some of the high multiple peers that we know about. So it -- just talk about differentiation. I asked you about win rates. What do you think it takes to sort of get to where you're sort of a premier multiple in the infrastructure design space?

I don't think about it that way. I can't control that. All I can control is building a business that's going to continue to deliver for the long term, continue to execute the targets that we set. And at the same time, allocate our capital in a way that maybe accelerates what you're describing, which is getting to a higher multiple. It's been improving over time. And I think that we're on a path to do that. Again, I simply look at it this way. There are different paths to get there. We've chosen the organic growth path and returning capital to shareholders. Our plan is to double our cash EPS every 3.5 years. I assume that if we double cash EPS every 3.5 years and return that capital consistently to shareholders, that we'll get a higher multiple.

And I think related to that, Troy, like if I look at the numbers, right, you kind of said it, you've got said it, you've $4.75 as your EPS for '24. It represents about a 20% EPS CAGR close to it. So I mean, in my world, that's kind of industrial compounder territory, but like what do you need to -- how much of the improvement is under your control at this point?

I don't feel like there's anything that's outside of our control. There are always events that are outside of our control, like again, what's happening today in Russian. Yes, that could be a -- it's certainly, for a lot of people, that could be a distraction, and that means a distraction for some of our customers. So for example, we have some really large customers, the U.S. Corps of Engineers, right, NAFAC and the Navy. There -- that could be a distraction. I don't think that changes the long-term trajectory. So I don't feel like there's anything out of our control in the longer term as we march forward to do this. There's a lot of funding that's coming into the market. We've expanded our exposure to the amount of project spend. So we were doing design. Now we're doing advisory design and program management. Now we're exposed to a multiple of what we were in the past. And we're competing to win. And I think we've been able to bring people on, so we have the -- our demand sides, supply side. Demand is win, supply is have the right people and the tools to do it, and I think we're keeping up.

Let me ask you one related question to what you just said because everybody is asking me about the macro lately, right? So you don't have a lot of exposure to continental Europe versus the rest of the company. Maybe talk about sort of any risks that you see internationally because that's where you've had really strong growth actually over the last couple of quarters.

Well, we've been focused on building around the markets that we think have a great long-term funding potential and at the same time, markets that we can very successfully compete in. The reason that we don't focus on continental Europe or we don't focus on Japan, for example, is because it would take too much capital and too much time for us to have to enter those markets. You're talking about a pretty significant investment to do that. So we don't need to. But what we see is in the markets that we're in, there's more than enough opportunity for us to grow for the long term. There's -- again, there's just -- there's so much ambition today to change infrastructure. Again, I've been around this business for 12 years now and going back even before that, we don't see the kind of ambition that exists today at any point in the last 15 years.

And maybe a related question then. You -- at the Analyst Day last year, I think it was talked about, 180 basis points of essentially non-volume-related cost out, right? And some of that is maybe rationalizing footprint a little bit. Some of that is other initiatives like the future of work in general. So maybe update us on, again, where you are here almost a year later?

So at our last Investor Day, we said -- I'm actually going to go back a little bit further than that. We said, first of all, where we were in the business that we were going to advance our margins, and we would get to industry-leading margins. And we said we have an ambitious target. We think the target could be 15%. This last year, we've recognized that 15% is a place that we can get to. That's not our target ambition anymore. We set an aspirational target of 17%. We've now moved to a point where we think 17% is our target. And so we haven't said what our aspirational target should be, but obviously, it's more than 17%. So we've seen that the changes we've made in our business, so how we actually operate the business, our real estate footprint and how we deliver our work and how we manage the business, that's got us to a place we're comfortably getting to 15%. The change is how we're delivering work, that's getting us beyond that, that's going to get us to 17%. And as we continue to grow our program management advisory business, as we continue to deploy more digital tools and create more types of digital streams of revenue, we look to go beyond that. So it's no longer -- again, when we started this journey, it was about making sure the business was really efficiently run, and everyone would have called that self-help. We've gone way beyond that now. We're well beyond the period of self-help, and we're actually now changing the way that we deliver the work and the work that we get. We'll always continue to do the important things to make sure that we run the business efficiently. We're always looking for those little incremental differences. And we're doing that for 2 reasons: one is to continue from margins, but it also gives us money to invest in the business. Because the one thing we've been doing throughout this time is as we've been advancing our margins, we've been investing in the business. And the thing about our business is when you invest in your business, you do it through your margins. So we were trying to get to that place where we have consistent organic growth, a path to make the business better and improve margins while investing through our margins to do it.

And Troy, a couple of years ago, you were -- you talked about sort of rationalizing the footprint to just focus on certain areas. Have you finished that now? Or are there still places to get out of?

No. There's still some places to get out of. I'll -- it's probably timely, but one of those places is Russia, right? A long time ago, we had made an acquisition, we have a Russian business. We decided 2 years ago that, that wasn't something that was a long-term part of our profile. And so we've been, over time, shrinking that business to the point where our intention is to either be in a place where we will eventually withdraw from that business or we'll have somebody acquire. So we've continued to do that. And so there are places in the world that we're continuing to shrink the portfolio. That's why I said, even today with our last quarter's growth of 5%, we could have done better if you just exposed the good growth because we were still having some growth, we're still having -- again, we're shrinking some of those businesses that we don't want in the portfolio.

To be clear, Russia is not a big part of your portfolio that...

It is -- I think the revenue there is 30 basis points of our revenue. It's very, very small.

Okay. So just -- you mentioned the Infrastructure bill. Let me just ask you for a quick update. Troy, are you seeing more design projects hit the pipeline of opportunity now? And do you have more conviction that before the year is out, you'll see something? Or is it really all '23 where we should see work really start?

I would expect that it's probably '23 before we see an impact of the Infrastructure bill. But again, I just -- when we set our targets for this year, there wasn't an Infrastructure bill. So it doesn't affect our targets that we set for this year, nor does it affect the $4.75 we set as a longer-term target. That was pre-Infrastructure. So I view that as being upside for us in the future. But I don't see a real significant impact on our business, sure there'll be some work that we'll start doing in the second half of the year. There's even some work that we started to do now, but very small. But we've seen an improvement in our pipeline. Again, our pipeline of work has increased by double digits. But that doesn't reflect the work that's going to come in the Infrastructure bill. Maybe a helpful point is, I've been spending some time with some of our larger clients. And while that -- while the money hasn't come into the pipeline to bid yet, the conversations that we've been having is talking about the support that they're going to need to be able to deliver on their commitments. And they don't have what they need to deliver on their commitments. And they're looking not this year, they're looking over the long term. They're looking out multiple years. And so we're having these dialogues around what's it going to take so we can build what they need to be able to deliver on their commitments that are longer term. And that's a little bit unique than we've had in the past. A lot of times, it's sort of the things you can see -- we have visibility to what's been letted over time. These are different conversations. We're not visible yet to what's going to be led out, but they're talking to us about preparing for massive amounts of work that are going to be let out. And that's a really positive sign for our industry and frankly, for the infrastructure economy.

Yes. No, that's helpful. So we do have an audience question here. But I wanted to ask you 1 follow-up to something you said around sort of program management and advisory. Again, one of your primary peers here in the U.S. is trying to sort of acquire its way into sort of those areas. You're not, right? So very different strategy. Maybe talk about sort of why you don't think you need to sort of build out inorganically there? Why this strategy is right for you guys. And you mentioned we're doubling in 3 years. it's off a small base, I assume. But like, does it really move the needle then as you go out into '23 and '24?

So program management doesn't move the needle for us, double the size of that business because that business as of last year was over $400 million. So it's not a small business. The interesting thing about acquisitions, we sort of talked about them well, look, there's a lot of risk when you do a large M&A. The large risk is really, it's cultural risk. Are you going to find people that will fit into your organization, and can you integrate them? That's number one. Number two is the multiples are really high. And so that means that you really have to do well. And so if I looked at something you paid 10x for just without any risk to kind of make it pencil out to beat our hurdle rate, that means that business has to grow organically into perpetuity for between 10% and 15%. That's hard. Because you think about the business you bought, it's not like you're buying a business where the people aren't doing anything, right? Hey, we'll bring them in and they can do all this great work and grow quickly. They're already operating near their capacity, and they're trying to grow by hiring people. So we just looked at the profile of M&A and said it just doesn't make sense for us. We can hire groups of people into the business and in program management, you hire the senior people in. And then what you do is you support them with the talent that we already have in the business because the underlying skills you need on that team are the skills that we have in the business. So we just continue to hire for our workforce, create capacity in our design workforce so that people can move into program management and then hire the senior people, sort of the tip of the spear people to win those large programs. And we just felt that's a better way for us to grow.

So this is a related question from the audience, Troy. So in terms of cash deployment, obviously, you just instituted a dividend, which was good to see, but you also bought back $1.2 billion in stock or 14% of outstanding shares. Since September 2020, your leverage is still reasonably low. So do you just keep going and buying back shares?

Yes, it's our intention to keep buying back shares. It gets back to your other point about our multiple. We obviously have our own internal thoughts and we think we should be deploying capital to buy back our shares.

Easy enough. So let me ask you about the sort of topic of ESG and sustainability. I know you've spoken many times about private institutions changing their thinking, but you've also sort of establish these new programs, sustainable technologies, ScopeX. So maybe you can talk about sort of what you're doing internally? And then separately, talk about the fluoro, your PFAS construction technology, is it ready for commercial deployment?

Okay. I'm going to -- I'll flip the order of that. So with respect to our PFAS technology, we had built a pilot and deployed it and tested it. So we built a pilot plant and tested it 2 years ago, and we've done that in Australia. And so now we actually have the technology deployed and supplying projects. We took the technology and brought it here to the U.S. and we built the pilot plants. We've done all of the testing. And now that pilot facility is actually being deployed on a client project. And so we'll have good data on the outcomes, probably by early summer. So in my view, it is being commercially deployed. What's a little bit different about it is it's actually an electrochemical process that actually breaks the carbon and the fluorine bonds. So it actually eliminates entirely. So it cleans it up instead of incineration, which basically distributes it in a different way. And so it's a way you can actually destroy the PFAS. And so we think that that's a unique solution. It becomes more unique because we can deploy it. You don't have to gather together and bring it to a facility. We can actually deploy this mobily. And then the other element of it is we can deploy it in a very green way is that the electricity or the power that you use in this process, we can use solar. So we can stick solar panels on the top of these facilities and these plants, deploy them remotely and destroy it. So I think it has a very wide application, and I'm very positive on that outcome. What we have to do is we're not going to be in the business of building these facilities, right? This mobile facility. It's not our expertise. And so at the moment, we're going to that process of deciding whether we will do it in the joint venture, with a partner or whether we would license that technology and then provide the technical support to actually do the work.

Interesting. And then just probably on...

Yes. Just on ESG, so we recognized that this was an ambition that our clients have been saying that started years ago. And what we needed to do was we needed to gather the technical ability because we have this amazing technical ability and bring it to those clients to help them solve their upfront problems. And so today, what's happening is we have a lot of smaller type of engagements. They're not -- some are designed, but not really, they're more advisory engagements where we're actually helping our clients think through how they're going to get to the destination because they set these really bold ambitions but they have to figure out how am I going to do it. And so we're working now, sort of this is the very front end of this process is consulting to figure out how they'll achieve these ambitions. We've also done a few other things. One is, we said, "Look, within our designs, all of our designs should be reducing emissions by at least 50%." And so that is either in the design, through the construction of the materials used or through the operating of the -- whatever the piece of infrastructure is. And so we set that as an ambition, and we have teams of people that look at the projects, and they design them to achieve that outcome. And then we have our own footprint. We have our own ambitions as well. And so we said that we'll be carbon neutral by 2030. But in terms of our Scope 1 and Scope 2 at the end of this last calendar year, we got to carbon neutral.

Got it. And so maybe I can ask you the same question about energy transition. Is it kind of the same strategy? Or any differences you think of? Like can you talk about that?

When you're talking about energy transition, is this part of the overall push of ESG?

Yes.

So I'll make 2 points. One is, there seems to be a little missing piece to investment decisions in ESG, right? People are making investment decisions because it's the right thing to do or they're just testing the market as they go along. So for example, it might be 20% more to build a piece of infrastructure. And to have it operated, cost 20% more. But you don't know what your return is going to be. And until you take it to the market, you don't find what customers are willing to pay. So there's that process of discovery. So that's one piece that's missing. But the other is actually valuing what decarbonization looks like or even sequestration. How do you value that? And so we've started to make a push as an industry min leading the industry is how do you actually measure all of that, right? And how do you measure carbon sequestration? And it's even beyond that. There's -- there are people -- are renaturalizing habitat. That's an important part. But how do you measure the outcome? And so you have to measure it, define the standards but then put the right tools in place so you can measure it not looking back or looking forward. And if you can do that, well, then you can start to place values on carbon credits and create real markets for it. And I think that, that first step is going to happen now, markets, because when you go to look at the price of carbon credits, they're all over the map, and you'll start to get certainty around the value of decarbonization, then people can start to use that in their investment models, say, "Well, look, this is what the actual value is. I can put that into my investment thesis and I can figure out, does it make sense to build one way or to build another way." And I think that, that will create more momentum around real investment in ESG.

So Troy, like advanced facilities, your peer talks about maybe more than you do. But I mean, I assume you have pretty good capability there. So talk about sort of, could this also be a cycle for AECOM?

I'm not sure what you mean by advanced facilities.

So building semiconductors, design programs -- yes.

So just in terms of semiconductors, it's not a market that we get. We don't -- in this, we haven't grown up and built the design capabilities to actually operate in the world of semiconductors. So that's a large market that's going through an investment cycle that we're not participating in. Where we do have the ability is in our construction management business, and we do the supporting infrastructure. So I'll give you an example. You look in Phoenix, where Taiwan Semiconductor is building a huge facility. Now they have -- they do their own kind of inside the facility engineering. They don't hire anyone to do that. They do hire someone to build the box and they do hire someone to build all the supporting infrastructure. So how we play in that is we will do things like in our construction management business because these are long span steel facilities, we'll participate in building the box, and then we will participate in bringing all the supporting infrastructure to that facility. But once you get inside, that's not a place that we play.

Got it. So let me ask you about broader construction management, right? Because you sounded pretty positive about it last quarter. You mentioned a $20 billion backlog and expanding opportunities. Maybe you can talk about what expanding opportunities are? Because when I think about the business, I think about New York, office buildings, and that's probably not exactly right?

Yes. But it's still an important piece of the business. And there is still a lot of coming investments in office towers in Midtown Manhattan. So that's still happening and will continue to happen. But that business, we've expanded. We're now doing a lot of aviation work. And as you see, the investments that we made in aviation across the country, we'll participate meaningfully in that. When you look at just in New York at JFK, Terminal 1 and Terminal 6, we have 2 very large projects in aviation, just to rebuild those 2 terminals. And so there are other opportunities. And again, our business is just centered in the U.S. We haven't ventured outside the U.S. with that business. And there are ample opportunities that we will support in infrastructure, and that's going to be around aviation. It's going to be around the design of transit stations, and we'll do that. And then there's just the ongoing work of, I'll call it, high-rise residential. There's a lot of work that's going on, for example, in Nashville, right? We just completed the Four Seasons Tower in Nashville, and that developer is about to build 5 other towers of similar size and expenditure, and so we would be in place to do that work. So New York is still a place where there is an opportunity. But those other markets that are growing. We see those as great opportunities to participate in and then we've expanded out into other places, like aviation.

Only a couple of minutes left. Let me ask you about something that's near and dear to your heart, which I'm sure is cash flow. So we asked Gaurav, I think, on the call, we know you have an initiative to sort of smooth out your cash flow, right? The cash flow started very strong in Q1. So should we think that -- should that give us more confidence in sort of the guide, maybe higher end? Or are there things you're doing differently about cash flow that maybe allows you to generate more cash versus your earnings?

I think, again, I'll say, over the long run, we expect our earnings to convert to cash at the same rate, which is converting EBITDA to free cash flow at about 70% to 75%. And over the long term, I don't see that changing. So our cash per share is going to change because earnings are changing and share count is changing the way we deploy capital. But cash flow itself, there is a seasonality to it in our business. And there's not a lot we can do about that we can continue to improve it, but we won't dramatically change that. So we did have a very good first quarter. There's no question. but I wouldn't think about that as us having quarters that look consistently throughout the year like our first quarter. There's no doubt, the first half of the year is always going to be lower than the second half of the year. But we've worked very hard in putting the tools in place to improve that, right? We want to smooth the cash flow through the year and as much as we can, try and improve our working capital performance because it gives us capital during the year to keep buying back stock. So we'll keep focused on that. But that's just hard grinding work. There's no better way to describe it.

Well, on that note, Troy, thank you very much for joining us. We really appreciate it. Thanks.

Great. Thank you very much.

Thank you.