AECOM (NYSE: ACM) — Form 10-Q Summary
Business context and reporting period
Quarter ended June 30, 2022 (AECOM fiscal third quarter); financial statements are unaudited. AECOM provides infrastructure consulting, design, engineering, construction-management and program-management services, principally through its Americas and International segments, and invests in real estate through AECOM Capital. The results compare the three and nine months ended June 30, 2022 with the same periods in 2021. Unless noted, amounts below are USD.
Financial performance and position
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $3.242bn | $3.408bn | $9.722bn | $9.987bn |
| Gross profit | $220.6m | $201.5m | $630.7m | $581.2m |
| Gross margin | 6.8% | 5.9% | 6.5% | 5.8% |
| Operating income | $183.0m | $160.5m | $462.8m | $459.3m |
| Net income attributable to AECOM | $101.9m | $11.5m | $205.0m | $77.0m |
| Diluted EPS | $0.72 | $0.08 | $1.43 | $0.51 |
- Revenue and segments: Q3 revenue fell 4.9%, mainly due to a 6.2% decline in Americas revenue; International revenue was down 0.6%. Nine-month revenue fell 2.7%; Americas declined 4.2%, partly offset by 2.5% International growth. Management attributed lower Americas revenue mainly to reduced pass-through revenue in New York high-rise construction management and foreign-exchange effects.
- Margins and earnings: Gross profit rose despite lower revenue, with improved margins in both Americas and International. Management cited more efficient execution, lower real-estate costs, and investments in capability centers and digital solutions. Q3 interest expense fell to $27.4m from $149.0m, chiefly because the prior-year quarter included a $117.5m debt prepayment premium. Nine-month effective tax rate was 26.0%, versus 16.6%.
- Cash flow: Operating cash flow was $398.1m for the first nine months, versus $386.6m a year earlier. Investing used $121.6m, compared with $401.7m; financing used $495.9m, compared with $754.9m. The company repurchased $417.9m of stock and paid $42.4m in dividends during the period.
- Liquidity and working capital: Cash and cash equivalents of continuing operations were $1.011bn at June 30, 2022, down from $1.229bn at September 30, 2021. Working capital was $330.8m, down from $651.8m; DSO was 76 days, unchanged. AECOM reported $1.146bn available under its revolving credit facility.
- Debt: Total debt was $2.227bn at June 30, 2022, versus $2.236bn at September 30, 2021. The company reported a 2.30x consolidated leverage ratio and compliance with credit-agreement covenants. Its average effective interest rate was 3.4% for the nine-month period, versus 4.7% in 2021.
Material changes and unusual items
- Q3 and nine-month earnings benefited from higher gross profit and the absence of the prior-year debt prepayment premium. Nine-month restructuring costs increased to $88.9m from $34.8m, largely reflecting AECOM’s Russia exit.
- AECOM substantially completed its exit from Russia in March 2022. It recorded $69.1m of related pretax expense, including a $19.5m foreign-currency translation adjustment reclassified into earnings; management said the Russia business contribution had not been material.
- Continuing results exclude the self-perform at-risk construction businesses classified as discontinued operations. Nine-month discontinued-operation losses attributable to AECOM were $68.7m, including additional civil-infrastructure sale-related estimates; the comparable 2021 loss was $122.7m. The oil-and-gas construction business was sold in January 2022.
- Foreign-currency translation losses reduced comprehensive income in the quarter. Goodwill decreased by $66.9m over the nine months, primarily from foreign exchange.
Outlook, risks and contingencies
- Management said available operating cash flow, cash, revolving-credit capacity and potential access to capital should cover projected requirements for at least 12 months. It gave no specific revenue or EPS guidance in the provided filing text.
- Management expected fiscal 2022 restructuring expense of approximately $20–30m for efficiency and margin actions and $70–80m related to the Russia exit. It estimated related cash costs at $20–30m and approximately $10m, respectively; elsewhere, it described expected fiscal 2022 restructuring spending of $40–50m. These estimates have different stated scopes and should be checked against subsequent disclosures.
- As of June 30, $21.3bn of transaction price remained allocated to unsatisfied or partially satisfied performance obligations; approximately 60% was expected to be satisfied within 12 months.
- Key business risks include project delays or cancellations, government-contract funding and audits, fixed-price contract losses, inflation and foreign exchange, interest-rate exposure, recruiting and retention, cybersecurity, and climate-related disruption. A 1 percentage-point rise in short-term floating rates would have increased nine-month interest expense by an estimated $9.0m, before considering other effects.
- Contingent obligations included approximately $645.4m of issued standby letters of credit and $3.7bn of surety bonds, primarily supporting project execution. The filing also describes guarantees and joint-venture obligations.
- Significant unresolved matters include DOE project claims (including claims seeking $103m and $60.4m, plus alternative breach-of-contract claims), a New York environmental-permit matter for which excess loss cannot currently be estimated, and retained refinery turnaround litigation with competing payment and damage claims. AECOM states recovery or outcome is uncertain.
Most important facts for investors to verify
- Whether improved gross margins persist as pass-through revenue and Americas revenue trends evolve.
- Actual fiscal 2022 restructuring expense and cash outlays, including the Russia-exit and efficiency-action amounts.
- Cash conversion and working-capital movement, including the role of receivables sales and project billing timing.
- Progress, recoveries, costs and potential liabilities from the DOE, environmental and refinery disputes, and obligations under guarantees and surety bonds.
- Debt covenant headroom, floating-rate exposure and the availability of revolving-credit capacity.
- Subsequent updates to backlog conversion, project delays, foreign-exchange impacts and management outlook.