AECOM Form 10-Q Summary
Reporting period: First quarter of fiscal 2022, three months ended December 31, 2021; comparison is with the three months ended December 31, 2020. Balance-sheet comparisons are with September 30, 2021. AECOM provides infrastructure consulting, design, engineering, construction and program management services, and real estate development services.
Financial performance
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $3.267 billion | $3.313 billion | Down 1.4% |
| Gross profit / margin | $200.2 million / 6.1% | $184.4 million / 5.6% | Profit up 8.6%; margin +0.5 points |
| Operating income | $168.3 million | $141.2 million | Up 19.2% |
| Continuing operations net income attributable to AECOM | $117.8 million | $83.4 million | Up 41.2% |
| Net income attributable to AECOM, including discontinued operations | $61.5 million; diluted EPS $0.43 | $26.1 million; diluted EPS $0.17 | Net income up 135.6% |
| Operating cash flow | $194.9 million | $7.1 million | Improved by $187.8 million |
- Revenue included pass-through costs of $1.7 billion, versus $1.8 billion a year earlier; these were 53% of revenue versus 55%. Management cautions that pass-through revenue can make reported revenue less indicative of underlying business trends.
- Americas revenue fell 3.7% to $2.464 billion, primarily reflecting lower pass-through revenue in New York City high-rise construction management. Gross profit rose 3.4% to $150.0 million and margin improved to 6.1% from 5.7%.
- International revenue increased 6.2% to $802.4 million. Gross profit rose 26.3% to $49.4 million and margin improved to 6.2% from 5.2%, supported by volume and efficiency improvements.
- Discontinued operations generated a net loss of $62.0 million, compared with a $55.8 million loss. The current-quarter loss included a $40.0 million additional loss related primarily to revised estimates for civil-infrastructure sale working-capital obligations and contingent consideration.
Cash, liquidity and debt
- Cash and cash equivalents from continuing operations were $1.082 billion at December 31, 2021. Cash declined by $143.4 million from September 30, mainly due to $262.3 million of share repurchases.
- Operating cash flow improved substantially, with management attributing the year-over-year change primarily to approximately $229.2 million of improved working-capital cash flow, including an 11-day improvement in days sales outstanding versus the prior-year quarter. DSO was 78 days, compared with 76 days at September 30, 2021.
- Working capital was $416.8 million, down from $651.8 million at September 30, 2021.
- Total debt was $2.229 billion, broadly unchanged from $2.236 billion at September 30. The company reported a 2.40-to-1 consolidated leverage ratio, compliance with credit covenants, and $1.145 billion available under its revolving credit facility.
- The average effective interest rate on total debt was 3.4%, versus 5.2% a year earlier. Management estimates that a 1-point increase in short-term floating rates would have increased quarterly interest expense by $2.6 million.
- Management stated that anticipated operating cash flow, cash, borrowing capacity and potential market access should be sufficient for projected cash requirements for at least the next 12 months.
Material changes, outlook and risks
- Operating income and continuing-operations earnings rose despite slightly lower revenue, reflecting higher gross profit and lower restructuring costs ($3.4 million versus $13.0 million) and interest expense ($25.4 million versus $30.7 million).
- The company continued exiting self-perform at-risk construction businesses. It completed the sale of its oil and gas construction business on January 28, 2022, for a stated purchase price of $14 million, subject to adjustments. The related civil-infrastructure sale estimate revisions contributed to the quarter’s discontinued-operations loss.
- At December 31, 2021, AECOM reported $22.2 billion of remaining performance obligations; approximately 50% was expected to be satisfied within the next 12 months. The filing provides no specific revenue or earnings guidance.
- Management describes Q1 as typically the weakest quarter due to weather, holidays and project timing, with revenue generally higher in the second half of the fiscal year. COVID-related project delays were noted in the U.K., Middle East and Southeast Asia.
- The filing gives differing fiscal 2022 restructuring-cost estimates: approximately $20–$30 million in the Overview and $30–$40 million in Liquidity and Capital Resources. Q1 costs were $3.4 million. This inconsistency should be clarified.
- Capital allocation included a quarterly dividend of $0.15 per share, paid January 21, 2022, and repurchases of 3.03 million shares for $262.3 million in the quarter. Approximately $787 million remained under the repurchase authorization at December 31.
- Key contingencies include the DOE project claims, for which AECOM seeks recovery but cannot assure any recovery; a New York environmental matter and a refinery project dispute for which potential loss cannot currently be reasonably estimated. The company also disclosed $470.4 million of standby letters of credit and $3.4 billion of surety bonds, primarily supporting project execution.
- Other stated risks include cyclical client spending, fixed-price contract losses, government-contract audits and funding, joint-venture exposure, leverage and debt service, recruitment and retention, cybersecurity, foreign-exchange and interest-rate changes, and potential adverse purchase-price adjustments or proceeds from divestitures.
Important facts for investors to verify
- Whether underlying demand and margins remain strong after separating pass-through revenue from fee-based revenue, particularly in the Americas.
- The expected cash and earnings impact of the remaining construction-business divestitures and any further sale-related adjustments.
- Which fiscal 2022 restructuring-cost estimate is current: $20–$30 million or $30–$40 million.
- Cash conversion, receivables collection and DSO trends, including the contribution of working-capital movements to operating cash flow.
- Developments in the DOE claims, New York environmental matter, refinery dispute, and performance-assurance obligations.
- Progress against the $22.2 billion performance-obligation balance and management’s stated expectation that approximately half converts within 12 months.