AECOM Form 10-Q Summary
Business context and reporting period
AECOM provides technical and management-support services, including planning, engineering, design and construction management. Continuing operations are reported in Americas, International and AECOM Capital segments. The filing covers the fiscal second quarter and six months ended March 31, 2021; comparisons are with the corresponding 2020 periods. Management Services and self-perform at-risk construction businesses are classified as discontinued operations.
Financial performance
| Metric | Three months ended March 31, 2021 | Six months ended March 31, 2021 |
|---|---|---|
| Revenue | $3,265.6 million; +0.6% year over year | $6,578.7 million; +1.5% |
| Gross profit / margin | $195.3 million / 6.0%, versus $168.8 million / 5.2% | $379.6 million / 5.8%, versus $334.6 million / 5.2% |
| Operating income / margin | $157.7 million / 4.8%, versus $110.1 million / 3.4% | $298.8 million / 4.5%, versus $197.3 million / 3.0% |
| Net income attributable to AECOM | $39.4 million, versus a loss of $86.1 million; diluted EPS $0.26, versus a loss of $0.54 | $65.5 million, versus a loss of $45.5 million; diluted EPS $0.43, versus a loss of $0.28 |
| Continuing operations attributable to AECOM | $88.3 million | $171.7 million |
Discontinued operations generated losses attributable to AECOM of $49.0 million for the quarter and $106.2 million for the six months. The quarter’s stronger total result therefore includes continuing-operations improvement and a smaller discontinued-operations loss.
- Cash flow: Six-month operating cash flow was $66.3 million, versus cash used of $506.0 million in the prior year. Investing activities used $362.5 million; financing activities used $580.4 million. The filing attributes the operating-cash-flow improvement to business disposals, improved working capital and earnings, and a favorable net impact from receivables sales.
- Cash and liquidity: March 31 cash and equivalents were $934.9 million for continuing operations ($946.3 million including cash classified as held for sale), down from $1,708.3 million on September 30, 2020. Working capital was $656.5 million, down from $1,439.9 million; DSO improved to 89 days from 93. AECOM reported $1,131.3 million available under its revolving credit facility and stated liquidity sources should cover projected needs for at least 12 months.
- Debt: Total debt was $2,126.5 million, compared with $2,085.0 million at September 30, 2020. The February 2021 refinancing extended credit-facility maturities to 2026 and reduced revolving-facility capacity to $1.15 billion. At March 31, the company reported leverage of 2.5 and interest coverage of 6.3, and compliance with covenants.
- Capital returns: AECOM repurchased $591.7 million of stock during the six months. It had approximately $750 million remaining under the repurchase authorization at March 31.
Material changes versus the prior comparable period
- Quarterly revenue was nearly flat, while six-month revenue rose modestly. Americas six-month revenue increased 2.0%, principally from high-rise construction-management activity in New York City; International quarterly revenue increased 3.5% as markets stabilized and framework-agreement backlog grew.
- Gross margins improved in both segments. Management cited restructuring, lower costs, technology and shared-service efficiencies, and exits from lower-returning countries. General and administrative expense and restructuring costs were lower than in 2020.
- Interest expense declined to $63.5 million for the six months from $77.5 million, primarily due to lower debt. Equity earnings from joint ventures fell to $15.4 million from $23.4 million, mainly reflecting completion of an Americas sports-arena project.
- Cash declined substantially, primarily due to share repurchases and cash disposed with the power and civil infrastructure business sales. Investing cash flow also reflects a $259.9 million net cash outflow related to those sales; the prior-year period included $2,096.9 million of net proceeds from the Management Services sale.
- AECOM completed sales of its power and civil infrastructure construction businesses during fiscal 2021 and recorded related disposal losses, including a $32.8 million civil-infrastructure sale loss in the quarter.
Outlook, commentary, risks and unusual items
- At March 31, unsatisfied or partially satisfied performance obligations totaled $18.6 billion; approximately 55% was expected to be satisfied within 12 months. The filing does not provide clear company-wide revenue or earnings guidance.
- Management cited potential upside from proposed U.S. infrastructure initiatives, but stated that enactment and impact are uncertain. COVID-19 continued to affect client spending, project timing and awards, including in the U.K., Middle East and Southeast Asia; U.S. state and local budget shortfalls also weighed on the pursuit pipeline.
- The company expected fiscal 2021 restructuring costs of $30–$50 million in its business discussion, but its liquidity discussion says it expects to spend $75–$95 million on restructuring actions. The filing gives inconsistent ranges; investors should clarify whether the amounts use different definitions or scopes.
- After quarter-end, AECOM obtained a $700 million secured Term B Facility and completed a tender offer for $608.3 million principal amount of 2024 Notes, paying $697.2 million plus accrued interest. The filing says the purchase was funded by the facility and cash on hand.
- Material contingencies include DOE project claims, for which AECOM is pursuing recovery and cannot assure success; a refinery turnaround dispute involving AECOM claims of approximately $144 million and opposing claimed damages and offsets of $93 million; and a New York environmental matter for which excess loss cannot currently be estimated. AECOM reported $502.5 million of standby letters of credit and $4.1 billion of surety bonds, principally supporting project execution.
- Other risks include fixed-price contract losses, project and partner performance, government-contract audits or termination, litigation and insurance exposure, pension funding, leverage, foreign exchange and interest-rate changes. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile the filing’s $30–$50 million and $75–$95 million fiscal 2021 restructuring-cost expectations.
- Assess the quality and sustainability of cash generation, including working-capital movements, receivables sales and cash use for repurchases and divestitures.
- Review the post-quarter 2024 Notes tender and Term B borrowing, including resulting debt, interest expense and liquidity after the transactions.
- Monitor conversion and margins of the $18.6 billion performance-obligation balance, and the effects of pandemic-related delays and proposed infrastructure spending.
- Track potential exposure and timing in the DOE, refinery and environmental matters, as well as the company’s substantial surety-bond and letter-of-credit commitments.