AECOM Technology Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2013; comparisons are with the corresponding 2012 periods. AECOM provides global professional technical and management support services through Professional Technical Services (PTS) and Management Support Services (MSS).
Key financial metrics
| Metric | Three months ended March 31, 2013 | Six months ended March 31, 2013 |
|---|---|---|
| Revenue | $1,989.6 million, down 1.1% | $4,006.9 million, down 0.8% |
| Gross profit | $99.8 million, up 31.1%; gross margin 5.0% of revenue | $178.0 million, up 6.9%; gross margin 4.4% of revenue |
| Gross margin on revenue net of other direct costs | 8.0%, versus 5.9% | 7.1%, versus 6.6% |
| Operating income | $80.4 million, up 10.0% | $142.4 million, down 5.0% |
| Net income attributable to AECOM | $53.8 million, versus $49.0 million; diluted EPS $0.53, versus $0.43 | $91.9 million, versus $96.9 million; diluted EPS $0.88, versus $0.85 |
| Operating cash flow | $152.3 million for six months, versus $5.0 million |
For the six months, income tax expense was $26.7 million and the effective tax rate was 22.1%, versus 27.0%. Interest expense was $22.8 million, compared with $22.6 million.
At March 31, cash and cash equivalents totaled $627.7 million, including $136.6 million held in consolidated joint ventures and restricted to their use. Working capital was $1,130.9 million. Total debt was $1,291.1 million, up from $1,069.7 million at September 30, 2012; $1,123.5 million was long-term debt. AECOM had $716.7 million available under its $1.05 billion revolving facility. Its leverage ratio was 2.61 against a maximum of 3.0, and it reported compliance with debt covenants.
Material changes versus prior periods
- Quarterly revenue declined modestly, while six-month revenue also fell. Excluding acquired-company revenue, six-month revenue declined 2.6%; lower Australian mining activity and reduced Americas engineering and program/construction management work were principal factors.
- PTS revenue declined 2.0% in both the quarter and six-month period. Six-month PTS gross profit fell 5.7%, including approximately $11 million of severance costs associated with lower Australian mining activity.
- MSS revenue rose 6.6% for the quarter and 8.9% for six months, supported by increased U.S. Armed Forces work in the Middle East. MSS returned to positive gross profit from losses in the comparable periods.
- Gross profit improved, but equity earnings from joint ventures fell 53.3% for the quarter and 46.7% for six months, primarily due to weaker results from U.S. Army- and Department of Energy-related ventures. Higher G&A reflected increased performance-based compensation.
- Operating cash flow improved substantially, but management attributed the change mainly to working-capital timing. Receivables sales provided a stated $55.9 million net benefit. Financing cash use included $247.6 million of repurchases; the company repurchased 2.2 million shares during the quarter at an average $30.09 per share.
Outlook, risks and unusual items
- No specific earnings or revenue guidance is provided. Management said expected liquidity sources should cover projected cash requirements for at least the next 12 months. Backlog was $17.1 billion: $9.5 billion contracted and $7.6 billion awarded but not yet signed; backlog may be delayed, reduced or canceled and is not assurance of revenue or profit.
- Management cites seasonal and cyclical demand, dependence on government funding, and exposure to U.S. federal sequestration—which began March 1, 2013—as risks to project demand. Other cited risks include contract termination, fixed-price project losses, acquisitions and integration, international operations, and collection or performance exposures.
- Contingencies include approximately $19 million withheld by the U.S. Government pending resolution of questioned costs at the Global Linguists Solutions joint venture; Australian litigation related to a motorway traffic forecast, with damages unspecified; and a U.S. investigation concerning a Hawaii landfill project, with no action filed as of the report. Management did not expect ordinary-course legal matters overall to have a material adverse effect, but adverse outcomes in the specified matters could be significant.
- Standby letters of credit totaled approximately $254.8 million, primarily for insurance and performance guarantees. The company reported no material fair-value adjustments during the six-month period. A retroactive U.S. research-credit extension produced a $2.7 million tax benefit in the quarter.
- Foreign currency translation reduced six-month comprehensive income; accumulated other comprehensive loss was $208.6 million at March 31. A 1% change in short-term floating rates would have changed six-month interest expense by approximately $2.0 million, based on the filing’s sensitivity estimate.
Important facts for investors to verify
- Whether improved quarterly margins and MSS profitability can persist as PTS demand remains pressured, particularly in Australian mining and the Americas.
- How much of the operating cash-flow improvement reflects recurring collections versus working-capital timing and receivables sales.
- Debt trajectory, upcoming maturities—particularly the $600.4 million scheduled for fiscal 2016—and headroom under leverage covenants.
- Developments and potential financial exposure in the GLS, Australian motorway and Hawaii matters, and any related government-contract consequences.
- Conversion of awarded and contracted backlog into funded work, revenue and profit amid government budget reductions and possible project changes.