AECOM Form 10-Q Summary
Reporting period: Second quarter and six months ended March 31, 2022; filed May 11, 2022. AECOM provides global infrastructure consulting, engineering, design and program-management services through its Americas, International and AECOM Capital segments. Figures below are in U.S. dollars; amounts are in millions except per-share data.
Financial performance
| Metric | Three months ended Mar. 31, 2022 | Three months ended Mar. 31, 2021 | Six months ended Mar. 31, 2022 | Six months ended Mar. 31, 2021 |
|---|---|---|---|---|
| Revenue | $3,213.7 | $3,265.6 | $6,480.4 | $6,578.7 |
| Gross profit / margin | $210.0 / 6.5% | $195.3 / 6.0% | $410.2 / 6.3% | $379.6 / 5.8% |
| Operating income / margin | $111.5 / 3.5% | $157.7 / 4.8% | $279.8 / 4.3% | $298.8 / 4.5% |
| Income from continuing operations | $54.6 | $93.2 | $177.8 | $182.0 |
| Net income attributable to AECOM | $41.6 | $39.4 | $103.1 | $65.5 |
| Diluted EPS | $0.29 | $0.26 | $0.72 | $0.43 |
| Cash from operating activities | — | $193.2 | $66.3 |
- Quarterly revenue declined 1.6%; first-half revenue fell 1.5%. The Americas segment declined, partly offset by International growth. Pass-through costs are included in revenue: they represented 50% of quarterly revenue and 51% of first-half revenue, versus 52% and 54% a year earlier.
- Gross margin improved in both periods, while operating income fell, chiefly reflecting higher restructuring costs. The quarter included $73.3 million of restructuring costs, compared with $8.8 million a year earlier.
- Quarterly income attributable to AECOM rose modestly despite lower continuing-operations earnings, as discontinued-operation losses narrowed. First-half attributable income increased primarily as prior-year construction-business sale losses did not recur to the same extent.
- Interest expense decreased to $24.2 million for the quarter and $49.6 million for the first half, mainly due to lower effective borrowing rates. The six-month average effective debt rate was 3.3%, versus 5.1%.
Segments and material changes
- Americas: Revenue fell 2.8% in the quarter and 3.2% in the first half. AECOM attributed the first-half decline primarily to lower pass-through revenue in New York City high-rise construction management. Gross margin improved to 6.7% for the quarter and 6.4% for the half-year.
- International: Revenue increased 2.1% for the quarter and 4.1% for the first half, with growth across Europe, the Middle East, India and Asia. Gross margin rose to 6.0% and 6.1%, respectively.
- AECOM substantially completed its exit from Russia in March 2022. The quarter included $69.1 million of Russia-related exit expense; approximately $19.5 million was the reclassification of accumulated currency translation losses into earnings. Russia had not contributed materially to the business.
- First-half discontinued operations reported a $68.1 million net loss, including $43.9 million of additional loss estimates related to the prior civil infrastructure business sale. AECOM completed the oil and gas construction business sale in January 2022 and recorded an approximately $3.0 million gain, net of transaction costs.
Cash, debt and liquidity
- At March 31, 2022, cash and cash equivalents were $965.1 million, down from $1,229.2 million at September 30, 2021. The company attributed the decline primarily to $312.8 million of share repurchases.
- First-half operating cash flow was $193.2 million, compared with $66.3 million a year earlier; management cited improved working-capital cash generation and higher net income. Investing activities used $93.9 million and financing activities used $368.6 million.
- Total debt was $2,230.9 million, versus $2,235.6 million at September 30, 2021. The revolving credit facility had $1,145.5 million available. AECOM reported a 2.30-to-1 consolidated leverage ratio and compliance with its debt covenants.
- Working capital was $413.7 million, down from $651.8 million at fiscal year-end. Days sales outstanding were 77 days versus 76 days at September 30, 2021.
- The board declared a $0.15-per-share quarterly dividend, paid April 21, 2022. The company had approximately $737 million remaining under its share-repurchase authorization at March 31.
Outlook, risks and contingencies
- AECOM reported $22.3 billion of remaining performance obligations; approximately 55% was expected to be satisfied within the next 12 months. The filing does not provide a clear earnings or revenue forecast.
- Management cited restructuring cost expectations of approximately $20–30 million for efficiency and margin-improvement actions and $70–80 million related to the Russia exit. Elsewhere, the filing estimates $40–50 million of restructuring spending in fiscal 2022. These figures appear to distinguish expense from cash spending, but the filing text does not clearly reconcile them.
- Management said anticipated liquidity sources should be sufficient for projected cash requirements for at least 12 months. Risks include cyclical client spending, project delays, fixed-price contract exposure, interest and currency movements, employee retention, cybersecurity, and geopolitical and climate-related disruptions. The filing notes uncertainty around the effects of the Russia-Ukraine conflict and sanctions.
- Potentially significant matters include disputed Department of Energy project claims, for which recovery is uncertain; an environmental-permit matter in New York and a retained refinery-project dispute, whose potential losses cannot presently be estimated. AECOM also reported approximately $3.4 billion of surety bonds and approximately $492 million of standby letters of credit issued primarily to support project execution; these are contingent exposures, not reported debt balances.
- The company reported effective disclosure controls as of March 31, 2022 and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Confirm the composition and cash-versus-expense treatment of the restructuring outlook, including the Russia-exit costs.
- Assess whether improved gross margins and operating cash flow are sustainable, given lower reported revenue and working capital.
- Review the assumptions behind remaining performance obligations, claims-related contract assets and receivable collectability.
- Track final purchase-price and working-capital adjustments from divested businesses, and the outcome and recoverability of the DOE and other retained legal claims.
- Monitor debt covenant headroom, variable-rate exposure, and the company’s capacity to fund dividends and repurchases alongside operating needs.