AECOM Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2023, ended March 31, 2023. Amounts are U.S. dollars; financial statement figures are in millions unless stated otherwise. Comparisons are with the corresponding 2022 periods.
Business context
AECOM provides infrastructure consulting, design, engineering, construction management and program management services through its Americas and International segments; AECOM Capital invests in and develops real estate. Results exclude its self-perform at-risk construction businesses, which are presented as discontinued operations. Revenue includes substantial pass-through costs billed to clients.
Financial performance
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Revenue | $3,490 | $3,214 | $6,873 | $6,480 |
| Gross profit / margin | $228 / 6.5% | $210 / 6.5% | $443 / 6.4% | $410 / 6.3% |
| Operating income | $197 | $111 | $349 | $280 |
| Net income attributable to AECOM | $77 | $42 | $165 | $103 |
| Diluted EPS | $0.55 | $0.29 | $1.17 | $0.72 |
- Q2 revenue grew 8.6%; first-half revenue grew 6.1%. Americas was the main growth driver, with Q2 segment revenue up 9.6%; International revenue rose 5.7% in Q2. Management attributed Americas growth to design and construction management demand, and International growth chiefly to the Middle East and Australia.
- Q2 operating margin improved to 5.7% from 3.5%, largely reflecting lower restructuring costs. First-half operating margin was 5.1% versus 4.3%. Gross margin was broadly stable; International gross margin improved, while Americas Q2 gross margin edged down.
- Continuing-operations net income attributable to AECOM was $118 million in Q2 and $206 million for the first half. Q2 total net income included a $42 million discontinued-operations loss; first-half discontinued-operations loss was also $42 million.
- Interest expense rose to $42 million in Q2 from $24 million and to $79 million for the first half from $50 million, primarily due to higher rates on variable-rate debt. The average effective debt interest rate for the first half increased to 5.2% from 3.3%.
Cash flow, liquidity and debt
- First-half operating cash flow was $131 million, down from $193 million. Management attributed the decrease mainly to a roughly $135 million decline in cash provided by working capital; accounts receivable and contract assets were a significant cash use.
- Cash and cash equivalents of continuing operations were $1,074 million at March 31, 2023, compared with $1,172 million at September 30, 2022. Working capital was $502 million, up from $419 million. DSO increased to 71 days from 68.
- Total debt was $2,226 million, broadly unchanged from $2,225 million at September 30, 2022. The company reported a 2.20-to-1 consolidated leverage ratio and compliance with its credit agreement covenants. It had $1,146 million available under its revolving credit facility.
- First-half capital expenditures were $69 million. AECOM paid $46 million in dividends and used $95 million to repurchase shares; approximately $502 million remained under the repurchase authorization at March 31.
Changes, outlook and notable items
- Q2 restructuring expense was $4 million, versus $73 million a year earlier, when costs largely reflected the Russia exit. First-half 2023 restructuring expense was $41 million, primarily related to planned Southeast Asia exits and other efficiency actions. The filing gives differing fiscal-2023 cost estimates: approximately $40–$50 million in one discussion and $30–$40 million in another.
- Discontinued operations recorded a Q2 loss of $42 million, principally due to a $38.9 million revised estimate of contingent consideration from the sale of the civil infrastructure business. The filing also reports $22.2 billion of remaining performance obligations, about 55% expected to be satisfied within 12 months.
- Management said available cash, operating cash flows and borrowing capacity are expected to meet projected cash needs for at least the next 12 months. No specific revenue or earnings guidance is provided in the supplied filing text. AECOM is exploring strategic options for AECOM Capital while continuing to manage existing investments.
- Management noted seasonal patterns, including typically stronger activity in the second half of the fiscal year. Key risks include economic or client-spending downturns, government contract funding and changes, fixed-price project losses, foreign exchange and interest-rate movements, and the ability to retain staff and manage joint ventures.
- Contingencies include DOE project claims, for which recovery is uncertain; an environmental matter in New York and a retained refinery-project dispute, whose potential losses cannot currently be reasonably estimated. At March 31, AECOM reported approximately $864.9 million of issued standby letters of credit and $4.7 billion of issued surety bonds, primarily supporting project execution. Management stated that other ordinary-course legal matters are not expected to materially affect the company, subject to the specified exceptions.
Most important facts for investors to verify
- Whether revenue growth translates into stronger underlying performance, given pass-through revenue of 52% of Q2 revenue and the working-capital-related decline in operating cash flow.
- Progress on collections and contract assets: DSO rose to 71 days, and recorded claims in contract assets and other non-current assets were approximately $140 million.
- The final fiscal-2023 restructuring-cost outlook, given the filing’s differing $30–$40 million and $40–$50 million estimates.
- Developments in the civil-infrastructure sale adjustment and the DOE, New York environmental and refinery disputes, including any material changes to recoveries, accruals or exposure.
- Debt costs and covenant headroom as variable rates change; the filing estimates a 1 percentage-point rise in short-term floating rates would increase first-half interest expense by $4.7 million.