AECOM FY2022 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2022; comparison is primarily with fiscal 2021. The filing is an annual report, not a standalone Q4 filing. Q4 FY2022 revenue was $3.43 billion and net income attributable to AECOM was $105.6 million (diluted EPS $0.75).
Business context
AECOM provides infrastructure consulting, engineering, design, program management and construction management services. Continuing operations report through Americas, International and AECOM Capital (ACAP). The company has exited its former self-perform construction businesses and completed its exit from Russia-related operations. Government clients generated 41% of FY2022 revenue; no single client represented 10% or more.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $13.15 billion | $13.34 billion | Down 1.4% |
| Gross profit / margin | $848.0 million / 6.4% | $798.4 million / 6.0% | Profit up 6.2% |
| Operating income / margin | $646.8 million / 4.9% | $629.6 million / 4.7% | Up 2.7% |
| Net income from continuing operations | $414.6 million | $319.8 million | Up 29.6% |
| Net income attributable to AECOM | $310.6 million; diluted EPS $2.18 | $173.2 million; diluted EPS $1.16 | Up 79.3% |
| Cash from operating activities | $713.6 million | $704.7 million | Up $8.9 million |
| Cash and cash equivalents | $1.18 billion | $1.23 billion | Down $58.0 million |
| Total debt | $2.22 billion | $2.24 billion | Down $11.0 million |
| Working capital | $418.6 million | $651.8 million | Down $233.2 million |
- Net income attributable to AECOM includes a $78.5 million loss from discontinued operations; continuing-operations income attributable to AECOM was $389.1 million.
- Revenue included $6.8 billion of pass-through costs, down from $7.2 billion in FY2021. These costs are included in both revenue and cost of revenue.
- Americas revenue fell 2.8% to $9.94 billion, while gross margin improved to 6.4%. International revenue increased 3.0% to $3.21 billion and gross margin rose to 6.4% from 5.3%. ACAP joint-venture earnings increased to $24.4 million, partly from monetizing two real estate investments.
- Operating cash flow exceeded net income. DSO improved to 68 days from 76 days. Capital expenditures, net of disposals, were $128.1 million; cash used for share repurchases was $473.0 million, and dividends paid were $63.3 million.
- Debt included $1.14 billion under the Credit Agreement and $997.3 million of 2027 Senior Notes. The company reported a 2.30x consolidated leverage ratio, covenant compliance, and $1.15 billion available under its revolving facility. A 1 percentage-point increase in floating rates would have increased FY2022 interest expense by $11.3 million, including swaps.
Material changes and unusual items
- Despite lower reported revenue, gross profit and operating income increased, reflecting improved margins, cost efficiency and lower corporate overhead. Pass-through revenue declined and partly explains the revenue decrease.
- FY2022 restructuring expense was $107.5 million, including $69.1 million associated with the Russia exit. That amount included $19.5 million from reclassifying accumulated currency translation losses into earnings.
- Interest expense fell to $110.2 million from $238.4 million, primarily because FY2021 included a $117.5 million debt prepayment premium and borrowing costs were lower.
- Discontinued operations generated a $79.9 million loss, improved from a $116.8 million loss in FY2021. FY2022 included $43.9 million of additional losses related to estimates for the civil infrastructure divestiture.
- Backlog rose 4.1% to $40.2 billion, primarily due to Americas design and construction management. Remaining performance obligations were $20.8 billion, approximately 60% expected to be satisfied within 12 months; this measure is $19.4 billion below backlog under the filing’s definitions.
Outlook, risks and contingencies
- Management expects $30 million to $40 million of restructuring costs in FY2023, primarily for actions intended to improve margins and efficiencies, including planned exits from certain Southeast Asian countries. The company stated it expects available cash, operating cash flow and borrowing capacity to meet projected cash needs for at least the next 12 months.
- The filing provides no specific FY2023 revenue or earnings guidance. Management noted continuing uncertainty from COVID-related disruption in Asia, inflation, rising interest rates, currency movements, government funding and broader economic conditions.
- Key business risks include competition and talent retention; government contract appropriations, audits and termination rights; fixed-price and guaranteed-maximum-price project cost or schedule overruns; joint-venture exposure; cybersecurity and data privacy; and foreign exchange and interest-rate risks.
- Contingent obligations include $4.4 billion of surety bonds and $644.7 million of standby letters of credit. The company also provides certain project, debt repayment and completion guarantees, including for ACAP-related ventures.
- Material unresolved matters include DOE project claims for which AECOM is pursuing recovery, an environmental-permit dispute in New York, and a retained refinery project dispute. Management said potential losses for the latter two matters could not be reasonably estimated; DOE recovery is uncertain.
- Defined-benefit pension plans had an aggregate deficit of approximately $204.4 million, down from $345.5 million in FY2021, largely due to higher discount rates. Planned FY2023 contributions were $21.4 million internationally and $8.8 million in the U.S.
Important facts for investors to verify
- Whether margin gains and operating cash generation persist as pass-through revenue, project mix, inflation and labor costs change.
- How much of the $40.2 billion backlog converts to profitable revenue; backlog includes unsigned awards and other amounts not equivalent to contractual performance obligations.
- Progress and eventual cash impact of FY2023 restructuring, including country exits and the stated $30 million to $40 million cost estimate.
- Debt covenant headroom and sensitivity to higher interest rates, alongside planned dividends and share repurchases.
- Outcomes of the DOE, New York environmental and refinery disputes, and any changes in related accruals, claims or guarantees.
- Future pension funding needs and the collectability of receivables and contract assets, including approximately $110 million of significant claims disclosed at year-end.