AECOM (ACM) Earnings Call Transcript & Summary

I'm joined by Beverley Stinson, AECOM's Global Chief Executive of Water. And of course, we have Will Gabrielski, Senior Vice President of Finance, Investor Relations and Treasury. I'd urge all of you to use the Q&A feature or e-mail me if you'd like to submit a question during the presentation, but I would ask that we just keep it to the topic at hand. And...

I think with that, I can pass it to you, Beverley, to kick off the prepared remarks.

Thank you. It's a pleasure to be here to talk about this topic today and the future of water in the industry. At AECOM, we are very fortunate to be one of the world's most trusted infrastructure consulting firms with -- providing the professional services from advisory through planning, design, engineering, program management and construction management. And we do so across the globe with our partners and our clients and delivering, I would say, some of the most complex and challenging pioneering innovative solutions for our unparalleled challenges that we face today. AECOM is over 50,000 professionals, and we're very pleased to have been nominated as Fortune's Most Admired Company for the past 8 years in a row, having been ranked at the top of the industry and the services we provide from environment to engineering and transportation, et cetera, and science. So with that, maybe we'll go to the next slide. and talk a little bit about what we think has really changed at AECOM in the last couple of years that's accelerated our growth and our experience. And it really was around 2021 when Troy became the new CEO, and he talked a lot about our Think and Act Globally strategy. And that has been just a remarkable culture and mindset change for the organization that has brought us together, developed a whole new culture of collaboration and really accelerated our growth both for our people and for our clients. So our Think and Act Globally strategy is really based around having a global collaboration in the work that we do and having a connected team of technical experts to serve our clients across the globe. And our people are our most important asset, obviously. And we invest a great deal in our people. We have strengthened our learning programs, our leadership development programs, our Centers of Excellence, our technical practice networks and also our academies, which are very unique in the industry and experts teaching other experts on the real differentiators of our business. We've also really learned how to serve our clients seamlessly and by bringing our best and brightest from across the globe to any topic or any issue, and that's been very evident in several of the projects that we've even secured recently to support our clients. It has been the collaboration of bringing our subject matter experts from around the world to address an issue, to come up with the most innovative solutions, to save our clients' money and to accelerate the delivery of their projects. And that's been really complemented by our ability to expand on our advisory services from the beginning of these large complex programs through -- with the programmatic delivery business that we've really stood up over the last 2 years. We've also transformed how we do our work in different ways by differentiating ourselves from our peers through the investment we've made in digital transformation and digital in terms of both internally how we do our work but also externally, and to support the activities and to accelerate work and adopting that global digital delivery solutions and developing our commercialized digital hosted services. These are really great opportunities, and I don't think many of our peers have to serve our clients better. And of course, our genuine investment and excitement about leading in sustainability and resiliency, which has been 4 decades, a cornerstone of the work that we do but this has really advanced quite rapidly with the culture that we have today about decarbonization, and we continue to develop a solution such as our ScopeX initiative and our advisory services to help our clients transition at this time. So with that, maybe we'll go to the next slide and talk a little bit about our business and how we're positioned to capitalize on growth opportunities in our markets. And it really starts with our technical expertise and we are so pleased to be able to say that we're either #1, 2 or 3 in any of the core markets that we serve and #1 in dams and reservoirs for many consistent years, similar and wastewater and water transmission and water supply, our water treatment and desalination systems or reuse, big water conveyance. So we really have a very strong technical depth. And I would say, decades of proven track record experience within our technical capabilities. And with that, we've also really a very strong client base. And we have decades of relationship with our key clients around the globe. And that's just built a culture of trust and confidence that we can always deliver and it allows us then the opportunity to access and do projects, big audacious projects really that our clients trust us to deliver on. But we also can do so because of our broad base of talent and the ability to bring experts to cover every complex element of a project from our teams. And the variation in skill sets that complement one another and delivering some of these most complex and sustainable water projects around the world. And we have a very finely very well, complementary portfolio mix of public, private and international clients and federal clients. So we have a good blend of the types of clients that we serve and diversification in that. Next. So -- I'm sorry, the [indiscernible], so I'll just keep going. Maybe talk for a moment about where we see the accelerated growth opportunities in the future. And really, there have been many changes in our societies over the last few years, recognition of climate change and so forth. And this is leading to probably [indiscernible] decades of growth for the water business. If we even start from the very simple issues that we -- many of our clients around the globe are experiencing, which is significant population growth coupled with urbanization, we see a shift in almost from about 45% of the global population living in urban areas to 70%. And this is against the backdrop of already aging infrastructure and small footprint. So our clients are challenged with that. But then when we add the backdrop of climate change, we're also seeing a need for infrastructure that is more sustainable, more resilient to advance and hold up over several decades of climate change that we see coming. And thirdly, there is a general increasing mandate to achieve Net Zero and to decarbonize our activities and to, in parallel, bring greater social benefits with the work that we do. So our clients are not only seeking to achieve regulatory compliance or solid engineering solutions, but to leverage that further to bring greater social value. So this is a trend that I think is going to really change our society as well. And the very good news, I think, especially in the Americas is that we're seeing the investment available to do this type of work, a substantial investment from IIJA and the Inflation Reduction Act to support these types of work. And the IIJA committed more than $90 billion of incremental funding specifically to address issues such as drinking water, new regulations in terms of lead and copper, wastewater and water reuse, big emphasis on addressing drought and flooding, especially in underserved communities. So it's a tremendous beginning of, as I said, multi-decade growth in this industry. So perhaps then, let's talk a little bit about where we see some real projects that have come to life because of these types of situations. We do see both drought and flooding as some of the major investment areas in over the next several decades. A very good example of that is in California and the West of the United States, which is experiencing the worst drought since the middle ages actually. So a sustained shortage of water supply and a big movement by cities and states to provide water -- reliable and safe water supply for their communities to continue to fuel economic growth. And one small group of communities came together in the East County JPA, Joint Powers Authority, which is near San Diego in California [indiscernible] Padre Dam, East County Advanced Water Purification Program. And this particular group of local agencies came together, united to -- to seek the design and recovery of wastewater as a sustainable water supply for their community so that they could reduce on imported water and thereby become more in control of their own future destiny, but also reliably addressing the need for water supply in their community. We responded and worked tightly with that client to provide one of the most innovative, forward-thinking, I'd say, world-class solutions to their desired outcomes. And not only for many water use programs cover about 70% to 80% of the water, the solution that we are providing to this community will recover up to 95%, pristine pure clean water to continue to support their community growth. And so to me, the reason that we were able to support that community is because we were able to bring technical innovation to bear on this project, the first of its kind. And we were able to do so by tapping into these global experts that we have across the globe from -- especially from Australia and from Singapore that supported the technical solutions on this project. And then I think along with our ability and our proven track record of delivering successfully similar projects and programs across the globe and especially in California. So this is a very good example of the success story that we hope to repeat in many locations. Maybe talk about another project that we recently responded to and were successful with, which is on the other side, not the drought, but on the flooding side of things. And we know that about $50 billion of resiliency funding was included in the IIJA for dedicated to address many of the issues related to flooding and mitigating flood. And one of the very significant projects that we secured and there are several others that are not listed here related to similar work as the FEMA Risk MAP Project. And this project not only deals with predicting and addressing the hazards of potential flooding but also identifying mitigating solutions for that and helping to plan out those mitigation programs. And so it also has an element of disaster response and resiliency work in it. And this was a really big step back in to securing our position as possibly the leading provider of services to FEMA along with other critical programs that we have underway with this important client. And there is really, again, the reason that I think we were able to bring such value here is simply because we were able to secure not only the global ability of our teams from around the world that do flood mapping across Europe, across Asia [indiscernible] but also to bring together the lessons learned that we had and how we could do that work in a more efficient and streamlined manner using digital tools. And then the key, I think to all of this is delivering it in a streamlined programmatic manner. So bringing it together those elements of deep technical knowledge, digital tools and our programmatic capability of delivering large complex programs gel very well in this particular project, and we're thrilled for the work that we can do for FEMA in this regard. And then maybe a little bit more about not only are we looking at the mitigation of droughts and floods in these types of projects, but how do we now begin to plan ahead for decarbonization of infrastructure and water. And in this regard, we're delighted to be working as we have for many decades with the New York City Department of Environmental Protection, and there are thought leadership efforts around decarbonization. Like many of the cities and around the world, we see that while nations are interested in how to address and mitigate climate change, many of the first movers are at the city and state level. And New York City is a good example of many of these cities around the world, taking the first step and setting standards that they are planning to achieve. In New York City, they sought to reduce carbon emissions by 40% by 2025, from a 2006 baseline and then by 50% in 2030 and by 80% by 2050. And of course, this has to be planned on using their multibillion-dollar capital spending plans to ensure that we can streamline the replacement of equipment, the upgrading of technologies to bring them to those solutions over time while also ensuring that not only are they achieving Net Zero and energy neutrality, but also they had objectives with regards to implementation of green energy. So we've been working with this client, as I said, for many decades, possibly close to 60, 70 years, but our depth of knowledge and understanding of all of their facilities and their complexities, their operating means and also their regulatory current and future concerns allows us to bring them solid solutions that will achieve these goals. And of course, we work across all aspects of their work, including the work that we did for them to reduce electrical demand, the technologies to reduce power through their operations and maintenance and to introduce more efficient energy production opportunities. So I think this, again, this type of a program is going to set standard globally. But I think it's -- it was secured by a constantly because of our depth again of expertise, the experience we have with the client, the trust that we have and that we were able to deliver carbon reduction ambitions across their full portfolio while respecting their need to meet regulation and to provide services to their rate payers. So maybe if I move to our next slide, which really expands on our Digital AECOM offerings with PipeInsights. We have many digital tools within AECOM, and I think it's a great benefit to our clients, one that we most recently launched within the water business was our digital tool called PipeInsights. Now a lot of wide water and not many of our engineering infrastructure elements [indiscernible] themselves to digital is because there's so much of our assets are difficult to access, difficult to monitor. And so having this large data set to an easy access to what are typically difficult to access assets allows us to plan more effectively. So the PipeInsights tool is a digital tool that allows our clients to inspect and quickly develop solutions to their aging infrastructure below ground. And what's wonderful is that its key values, it's able to quickly action on the information that it gathers. Unlike many other tools, this particular tool within a matter of hours is able to deliver not only true record of the condition assessment, but also to using our learning for many years to suggest solutions to those problems and to actually come up with a plan of prioritization of where the action should take place. So this really just [indiscernible] months of a client's activities to deliver a solid, actionable plan within hours instead of months and accelerates their ability to move quickly with confidence to the next level of repairing, replacing and addressing the needs of their assets to protect both the environment and to better serve their rate payers. So I should add, this was just actually, [indiscernible] award last night at the national award. So very exciting for the recognition of this tool in the industry. So with that, perhaps we can open it up to Q&A.

That was fantastic. So the first thing that pops into my mind is just, it would be great to get a little bit more perspective on AECOM's history and kind of name brand in the space. You mentioned at one point there that you have a 60- to 70-year-history with at least one of your clients. A little more perspective on just the kind of foundation of the water operation at AECOM.

Yes. Well, and we have clients that we've served for well over 100 years, actually, and we're delighted by that because that's just speaks volumes to the longevity of the service that we have the privilege of providing. But our -- many of our legacy organizations where some of the industry pioneers and they positioned themselves over a century ago to provide services globally in this water industry. And so our name recognition is really significant. We -- it's manifested in many ways, but we also have published an industry standard textbook that is now published in 5 languages and is recognized around the world, known as the MetCafineti Engineering textbook Hamburg. So -- but we have many companies that came together under this umbrella that just served a wealth of clients for hundreds of years. So it's a real privilege in the industry.

Interesting. And you highlighted at the beginning that AECOM is in the top 3 across all of the key water kind of sub verticals. How meaningful is that from a competitive perspective? And I'm just curious what the industry composition looks like once you start to drop below that top 3 kind of position in the market?

Yes. So I mean, I think it's a -- that -- the top 3 are quite -- generally quite tightly banded and most of them were 1 or 2. And -- but below that, it drops very quickly, I would say, quite exponentially on the size and the scale of the amount of work that many of the other companies do. But the reason that that's important, it's not the numbers. It's the fact that we have such a breadth and depth of expertise to call on. And that's -- this behavior and this culture that we have of really connecting globally. And I personally have had the privilege of working with some of my colleagues in Australia and Singapore and New Zealand for well over 15 years. And so we know each other. And the connectivity is real, but we make it real for all of our staff through our -- the ability to network through our technical practice networks, our academies. We have a very tightly knit group of monthly calls with our different practices. We have our Centers of Excellence where we bring global groups together that work as a unified practice. The dams practice is a very excellent example of that, where we have strong capabilities in South Africa, Australia and certainly in the United States. They work very much as a unit. So the beauty of the scale is not just the size, but it's the ability to have an expert in anything to help with anything that we need to do. It's also the ability to respond very rapidly in a situation of emergency to our clients when they have urgent needs. We have the depth and the breadth to be able to respond to that. And I think it's the ability to connect best practices across the globe, which not all of our competitors are doing. Very few, in fact. So that we are bringing the best ideas, the best people, the best solutions. So to me, that just jazzes me about what's going on at the moment.

Interesting. And I actually got a question from the audience. What are the things in water that AECOM can do that no one else can do?

Well, I think -- well, that's a good one. I mean, I can think of so many things, but I have to be accurate on that. I think at the moment, I could -- we're confident saying that we can address -- there is no challenge in the water infrastructure world that we can't address and have, I would say, the top technical expertise and the experience to address, whether it'd be from the advisory stage of planning for the water resource management, flood protection and mitigation, decarbonization, bringing to life, ESG in real world and doing so in a streamlined programmatic manner and also with our ability to do so with digital tools. So I think we have some very unique projects that are -- I don't think we can announce them yet, but very unique thought leadership projects and programs that we're on the leading edge of coming in at the very advisory stage to be able to address these multibillion-dollar programs in an accelerated time scale to meet an urgent need and there are several examples of these. And those are the types of things that we can do when we bring together, as I said, the technical expertise from around the globe, our programmatic approach to delivering our advisory on a holistic manner beyond just the technical but to the environmental and social benefit of these programs and to be able to deliver them in an accelerated time frame. I think -- I can't think of other agencies or organizations that can bring all of that together.

Very helpful. And another one from the audience is from a geographic perspective, are there parts of the world that AECOM will not go to? Are there parts of the world that are a major, major focus, just more of sort of a geographic kind of question.

Yes, there are. And maybe my colleague, Will, can also help.

Yes. I mean, Sean, consistent with what we've said. We've been in the process of exiting countries, not entering new countries. And Bev, you could probably tell the story about how I wouldn't name the country, but how we had a significant amount of water resources in one country where we didn't want to work any longer. I'll let you tell the story, but it's part of taking advantage of that competitive edge we're building through collaboration and scale. I'll turn it back to you, but we're not entering new countries, and we're primarily exiting countries still, Sean.

Yes.

Yes, it's quite a focused strategy. And as we said, we -- the beauty of the way we're working now is that we did exit a certain region, and we had a really wonderful technical expertise in that group. Several hundred people that we have worked with for many years and cherish and we were able to establish them and engage them and absorb them into our various Centers of Excellence. Just as I talked about our Dams Center of Excellence, as an example, we have Tunnels Centers of Excellence and also many of these practices. Those folks just became a part of those centers of excellence that serve the globe, and serve around the world. And the skill sets that many of these folks have are really quite exceptional and unique. So we never want to lose that and our ability to absorb those several hundred people in their areas of passion, where they do great work and to be able to serve clients all over the world. That's, I think, a wonderful way by which we can deliver exceptional services.

More coming in from the audience in the Q&A box. How is PipeInsights priced? And how big is it? And how big can it be? I mean I had this question written down as well just in terms of whether PipeInsights has wrapped around a broader design engineering package, whether it's a stand-alone kind of product or service offering. Maybe a little more color on that and a bit of perspective on how large this can be?

Just quickly a franchise. So one is we won't -- we're not going to announce the pricing of all of our digital products. But we do expect to be paid for them and they are a valuable element of how we're using scale and collaboration to raise that innovation internally and bring solutions to our clients that no one else in the industry can bring and certainly not. I think one of your questions show the other software companies that we compete with as well. So Bev could talk about how we're creating value with PipeInsights.

Thanks, Will. I appreciate that. So yes, the thing about PipeInsights is number one, just one really excellent example of the type of digital tool that an engineering company -- an engineering-led company can really bring to life. And it can serve multiple levels of -- provide multiple levels of service, and it is applicable across the globe, the language and the workflows that we use because we are actually global experts on this around the world, we were certain to lead in such a manner that is applicable in any part of the world according to their regulations and standards. But -- so it's a global applicability, which makes it huge to a situation that is one of the biggest concerns for our clients, which is asset management, especially pipelines and underground assets. So I think from that perspective as well, it is very important and it helps to prioritize the spend, which is, of course, limited for our clients against times when they're dealing with aging assets everywhere. So what it ultimately is part of is it's the first part of actually just, number 1, identifying defects. But then our program not only identifies those defects, but characterizes them and begins to offer solutions based upon our knowledge, very unique multi-decades of knowledge of how to repair vintage pipes and different types of pipes, et cetera. So we can offer up some potential solutions and even to a certain degree, get a sense of the cost of that. So this is really something that begins with knowledge, information that a client can use all the way through to the potential plan that they could to give them a prioritization of activities and how to execute it. Now we see a lot of software companies trying to do something similar. And the feedback that we've received from all of our testing with our clients is that they know that this is an engineering-led tool because it follows their logic. It follows their workflows. It's how they do it. It's exactly what they need. It follows their process and their procedures and it's not just information led -- a lot of information thrown at them. It's logical, and it's classified and makes it much easier for them to make sensible decisions quickly. So to me, it feels like when you're doing this job and understand the clients and their concerns, you can produce a much better product.

I think that makes a lot of sense. The audience is looking for a little more clarity in terms of whether PipeInsights is a sort of a one-time fee? Is it a subscription service? Is it embedded into a broader bid package? Will, I understand there's probably some sort...

Yes. We're just trying to get it. Yes, we're not going to announce our pricing strategy or the details on that. I mean, in aggregate, we've got dozens of digital products that really are -- I'll take a minute. But back to your question on what can we do that no other company in our industry can do or where are we competitively advantaged. The whole strategy is built around collaborating across the globe, deploying resources globally to our clients where they need them locally, which is very distinct from how our competitors operate and then bring you with that, the culture of innovation that gets accelerated internally and rewarded and celebrated. And that's been a big shift over the past few years. So PipeInsights is one of a few dozen products and dozens more in development that we think are going to dramatically create value -- better value proposition for our clients over the next several years, but we're not going to get into unless you're buying, by the way, for your house or your apartment, then we'll talk. But I think it's important that every client requires something different. So it's very different for every client.

And there's another question just about -- I guess, it's about the penetration. I mean if you just look across the relevant sort of water sector client base, how many of them are subscribed or utilizing PipeInsights at this, I guess, how far along are we there?

Yes. Actually quite far along. It's in use with several large clients at the moment. And actually, it's been very, very rapidly received hundreds of [indiscernible] within a very short period of time.

And it seems like it's interesting the way you address the kind of competitive edge versus the kind of vertical software competitive set, but also just sort of AECOM's direct peers also seem very active in trying to roll out differentiated data analytics, digitally-enabled type solutions. How would you characterize where AECOM is focused, how AECOM is trying to compete, where the -- where that relative differentiation is versus the actual traditional competitor set?

Will, do you want to say a few words?

I'll just, Sean, from my perspective, one big distinction, I think, is that we're doing it organically. So everything that we developed is developed in-house. We have a hurdle rate for how we allocate capital internally before we allocate it to our broader capital allocation policy. So we have underlying built-in assumptions for very high expected returns on deploying capital on these internal innovations that we're talking about here. And so that's one that I think is a bit distinct because there has been a lot of M&A around going out and buying these capabilities and then bringing them in-house. But from an AECOM standpoint, given our focus is 100% on organic growth, we see a lot of value in having our people develop these ideas and then like I said, getting the sponsorship internally to have those elevated and really celebrated, it's creating a nice [indiscernible] of ideas, as Bev just alluded to. But I don't think we should get too deep into the competitors specifically, but maybe from your standpoint, I mean, you're in the market competing every day, how are these tools and digital innovation impacting your win rate?

And so it's -- for me that what I think is really special is that we know our clients. I mean we are intimately engaged in their issues. We understand their challenges, we understand their competing demands. And anything, it's our commitment to try to help them be successful in all fronts. And so whenever we can help them identify a faster way to execute something that's practical or helps them prioritize or plan or even [indiscernible] spending on one thing to accelerate a more critical project. So this is coming from a place of really understanding our clients and their competing demands. And the level of service they need we -- so this is -- for me, that's the differentiator what we're doing is it's the connectivity and the access we have to our clients and then that ability once that solution is perfect to offer it to thousands of clients around the world. So I think it just -- it's real engineers doing work a little bit smarter.

We say it all the time, Sean, but innovation and digital adoption [indiscernible] industry. So what's exciting, I think, is that the opportunity set is so large. And I'm going to challenge Bev to tell another story that she tells me, but creating these tools on the fly, on a one-off basis, so then realizing they're globally deployable has been a big element. And I'm thinking of NYC DEP, Bev, and the scenario analysis we talked about, as an example, I'll let you [indiscernible] on that.

Actually, there's probably 2, even the work that we do for FEMA as well. But yes, the New York City climate planning -- climate adaptation is the first of its kind, I think. And so we talk about that where we've spoken about how New York City is blazing that trail with some of the major agencies around the world. Singapore PUB has such a passion for this and is exactly in the same position of looking at this type of thing as are many of our clients across Australia, New Zealand, Asia. And so -- and of course, our team in the U.K. is another great example of where we brought some. We just won another innovation award there and something similar with flooding that led into another piece that we add into our FEMA work here that is now going to be used in Australia. So this collective group of the innovators and thought leaders, their ability to connect and share that information quickly, to serve multiple clients across the globe, that's just -- it's really become quite exciting and seamless. It sounds like it wouldn't be, but it really is. It's all wonderful.

And this wouldn't have happened a few years ago, this level of global collaboration and support for these investments because our business was more diverse and focused on other things. And now that we've narrowed our focus and been very intentional about what we want to be and how we want to get there. That's been a step change in driving this global collaboration for sure.

Yes. So it sounds like the broader strategy, Think and Act Globally strategy, the digital innovation strategy is working out very well within the water sector?

And also our people, our people. That's -- every time they have an opportunity to bring forth an idea when it comes to life, it feeds exhilarating career rewarding opportunities for so many and it's real. So it attracts the best and brightest, I think.

So we've kind of established that you guys have the right -- excited about the strategy. Clearly, it's gaining traction. I think we should also hit on this funding backdrop. So that you highlighted the $90 billion of water infrastructure funding in the IIJA, I think, it would be great to get a little more perspective on exactly what the total addressable market is here and the growth rate in that addressable market. So maybe what is addressable to AECOM professional services in the water business within that $90 billion? And if you compare that $90 billion versus the pre-IIJA kind of 5- to 8-year funding baseline, how has that changed?

And so what I would say from -- and I don't have all the numbers at the top of my head. But what I would say is that we -- before IIJA, probably there was about an investment of about $50 billion a year from -- in the water wastewater sector. Only $6 billion of that was from the federal government in the U.S. Most of that came from states and cities. Now what we're seeing with the IIJA funding is that we have at least an increase of federal investment in the order of more than an additional $15 billion per year. And an initial -- there's an initial large investment really which came down to some pieces of that work were going directly to FEMA and Army Corps construction activities. So -- but from there on in, most of this work is not of the state revolving funds are receiving about a 60% increase in what they usually had and many of those are forgiveness loans. So there's a doubling, if not more, in available funding to progress water infrastructure. And I'm using that loosely without having numbers in front of me. So I think it's a game changer. And I think it's our clients and everyone sees it because I think it's been a little slow to take off because folks are stepping back now and reassessing how they address their programs. Instead of just making do and just getting by with small repairs, they're taking a step back and saying, what's the real meaningful infrastructure solution to this problem? Will we do it differently now that we see a pathway to actually funding the right solution? So I think this is where we actually have been brought in at the very front end of some of those discussions in an advisory capacity not just getting directly into small spend, not that they're ever small, but into project delivering. But this step back and bigger-picture solution, a longer-term plan. And I think the sense of security that, that funding is going to be there to carry out these bigger, meaningful projects. I think -- sorry, I missed the part of your question that was the addressable market, I think you said. So we don't -- some of that funding is related to use on equipment and so forth. But we have access to every part of the funding that's related to advisory planning, design and construction management life cycle of these projects.

Yes, Sean, that pipeline growth that we talked about on the earnings call is consistent across most of our major businesses, transportation, water, environment. And so what we've talked about is that this is definitely slower than we expected. But when you look at the pipeline, we see it coming at a pretty nice pace. We think the peak is probably 2026 in terms of IIJA funding. So there's going to be a steady step-up of that funding over those years and a pretty long and durable cycle of committed funding here that's going to hopefully change the trajectory even beyond '26 because I can't imagine a scenario where anyone is willing to in -- the federal government would except the scenario where infrastructure funding comes back down at a dramatic clip either. So hopefully, this is a new permanent state of elevated funding.

Yes. So another clarifying question coming from the audience just in terms of the overall [indiscernible] here, if some funding has shifted from state level to the federal level? Did the states pull back some funding? I guess, we're just trying to determine the incremental funding and where the federal funding is sort of just replacing existing state funding. Does that make sense?

So this is additional funding, both the pieces of the IIJA and the Inflation Reduction Act. These are supplemental above and beyond the baseline, if that's the question.

Yes. Well, the question is more with all this federal funding coming into the mix, does that -- do the states then pull back some of their own state level funding and...

No, Sean, I think [indiscernible]. But what percentage of -- sorry, I'm putting [indiscernible] but in generalities, what share of the funding at the state municipal level is coming from user fees and generated from user fees and obligated or required effectively to be used in those categories?

So to give -- looking at, say, certain funding that we're at states, they are going to have probably 2x to 3x the amount of funding that they would have had if they were depending upon their own state-level funding. And I can say for certainty that this is exactly the time that they want to. There's some of this federal funding that may require some matching funds. People are not going to miss out on this opportunity. Our clients are not going to miss out on this opportunity to leverage their own state funding, to access this massive amount of increased funding that they can get access to. So -- and so I don't think this is a swap.

Yes. Okay. Got it. That's loud and clear there. And then another question is regarding the headcount growth in anticipation of this funding coming through. Anything you can tell us about your HR program, how challenging it's been to sort of get ready for this growth? What you're doing to make sure you guys have the kind of human capital to capitalize on this opportunity?

Yes. I can speak a little bit, Will, I don't want to -- if you want to jump in, please go ahead. I can...

Yes, tell your story. We better hear from you [indiscernible].

Yes. No, I am -- and so we've been approaching this on multiple fronts. I have to say, obviously, we are hiring aggressively, and we're excited to do so. But we're also trying to create a better employee experience by shifting up our -- the level and the type of work that our employees are able to do and internally, streamlining a lot of the less exciting work through our digital tools. So we have this sort of underpinning of automation that we're bringing into our daily work. [indiscernible] many of our talented engineers to focus on the things that they love and that are passionate about and our clients. Now they also have access because these macroeconomic conditions are not the same everywhere around the world. And as I said, while we shut down in some nations, and we're focusing very much on others, we now have access to hundreds of employees that can serve these accelerated markets. And our Centers of Excellence are a key part of our solution as well. So it's aggressive hiring for better quality, more exciting jobs. And it's also about supplementing some of the work activities by digital, and bringing in our centers of excellence from around the globe to serve on those nations in those places where we're seeing accelerated growth. That's really part of it. And for each of those employees, as I said, there's a lot of upskilling, training, opportunities for professional advancement unlike many situations that we've seen in our careers in the past. So it's a really big employee value proposition, I think. So Will, we also have other things that we've been doing internally, maybe you want to share.

Yes, I'll just briefly just point you back to the earnings call where Troy and Lara spoke about the unprecedented level of investment we're making in health care, recognizing that's a big burden in a people business and putting us in a best-in-class category for our industry and on par with what you would call sort of best-in-class Fortune 100 in terms of employee mix of contribution to their health care costs and then leadership development programs, like when Troy became CEO and Lara became President, the doubling or tripling down on leadership investment in developing people early in their careers to be better leaders and developing people late in their careers to be better leaders. And through that, driving collaboration, like getting to meet people across the globe and be part of these programs has been something that I think has really changed how our people are engaging within the firm and made us a place, hopefully, that people want to build and finish career. So Troy and Lara from Day 1 have recognized people are the #1 asset we have and getting them to work well together and for the benefit of our clients is something that's going to be really important and competitive advantage for us.

Yes. Good stuff. And so we're getting to the top of the hour here. I just wanted to make sure for the investors, we point out environment and water is about 28% of NSR. Will, is that a good number for bottom line as well? Or is it a large...

Yes. When you get down to that net number, most of our businesses contribute at a pretty equivalent rate.

Yes. And when we think about environment and water, are those one and the same? Are they 2 separate verticals? I mean, Beverley, do both those fall under your purview or...

No. We -- so it's just like any of our business lines. We're very interconnected, frankly. And so there's -- we have our partners, right? And so we do a tremendous amount of work with all of our businesses collaboratively. That's the beauty of bringing this cross-business line collaboration. It's really something. But certainly, water and environment is -- has historically been very heavily integrated with one another. So we sometimes serve in separate roles, you know if it makes sense, but I think our clients love the fact that they have access to all of the AECOM skill sets.

Yes. Okay. Fantastic. I think some very clear themes and messages emerging here. I think we'll wrap it up there. Beverley, really, really appreciate the time and the insights on an exciting topic. And Will, unless you want to leave us with anything, we can sign out there.

Thank you. Thank you. I hope that was enjoyable.

Yes. I think it was great. It was great. And yes, have a happy holiday, everyone. Thanks, everybody, who joined us.

Thank you. Take care. Bye-bye.