AECOM Form 10-Q Summary
Reporting period: Fiscal third quarter ended June 30, 2021; comparisons are with the quarter and nine months ended June 30, 2020. Unless stated otherwise, amounts are in U.S. dollars. AECOM reports continuing professional-services operations in Americas, International, and AECOM Capital; sold or exiting businesses are reported as discontinued operations.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $3,408.4 million | $3,189.7 million | $9,987.1 million | $9,671.0 million |
| Gross profit / margin | $201.6 million / 5.9% | $185.1 million / 5.8% | $581.2 million / 5.8% | $519.7 million / 5.4% |
| Operating income | $160.5 million | $118.9 million | $459.3 million | $316.1 million |
| Net income attributable to AECOM | $11.5 million | $89.3 million | $77.0 million | $43.8 million |
| Diluted EPS | $0.08 | $0.55 | $0.51 | $0.27 |
- Revenue and operating performance: Q3 revenue increased 6.9%; nine-month revenue increased 3.3%. Nine-month gross margin rose to 5.8% from 5.4%, and operating income increased 45.3%. Growth and improved gross profit reflected Americas and International activity and cost-efficiency actions. Revenue includes substantial pass-through costs—54% of nine-month revenue versus 52% in the prior year—so revenue growth alone may not indicate underlying business trends.
- Quarterly earnings: Q3 net income attributable to AECOM fell to $11.5 million, primarily reflecting a $117.5 million prepayment premium recorded in interest expense when the company redeemed its remaining 2024 notes. Interest expense was $149.0 million versus $34.9 million in Q3 2020. Nine-month attributable earnings improved year over year.
- Segment trends: Q3 Americas revenue rose 5.9%, but gross margin eased to 6.1% from 6.3%. International revenue rose 9.9% and gross margin improved to 5.1% from 4.1%. Management cited efficiency and overhead reductions; International revenue also benefited from foreign exchange.
- Cash flow: Nine-month operating cash flow was positive $386.6 million, versus cash use of $319.7 million a year earlier. Management attributed the improvement to working capital, adjusted earnings, business disposals, and a favorable $73.7 million net benefit from receivables sales. Investing activities used $401.7 million; financing activities used $754.9 million, including $749.8 million of share repurchases and debt redemptions.
- Liquidity and working capital: Cash and cash equivalents, including cash in consolidated joint ventures, were $1,049.0 million at June 30, versus $1,708.3 million at September 30, 2020. Working capital was $568.5 million, down from $1,439.9 million; DSO improved to 79 days from 93. Joint-venture cash is restricted to the relevant ventures and is not generally available for AECOM’s operations.
- Debt: Total debt was $2,233.9 million, up from $2,085.0 million at September 30, 2020. AECOM refinanced and extended credit-agreement maturities, borrowed under new Term B and Term A facilities, and redeemed all remaining 2024 notes. It reported leverage of 2.5 and interest coverage of 6.8, meeting covenant limits of no more than 4.0 leverage and at least 3.0 interest coverage. Revolver availability was $1,138.8 million.
Material changes, outlook, and risks
- AECOM completed sales of its power and civil infrastructure construction businesses during fiscal 2021 and had substantially exited its self-perform at-risk construction business. Discontinued operations generated a nine-month net loss of $119.2 million, including disposal losses and impairments; Q3 loss was $15.5 million.
- Management said it expects continued margin improvement from restructuring and operating efficiencies, and plans to direct future available cash toward share repurchases. About $590 million remained under the repurchase authorization at June 30. The filing does not provide clear numeric revenue or EPS guidance.
- Restructuring estimate requires verification: the filing gives a fiscal 2021 expectation of $40–$50 million of restructuring costs in its overview and restructuring discussion, but later states expected fiscal 2021 restructuring costs of $75–$95 million. Nine-month costs were $34.8 million. The filing text does not reconcile these estimates.
- Management identified potential positive demand from proposed U.S. infrastructure initiatives, but enactment and impact are uncertain. COVID-19-related project delays, halted work, client spending constraints, and weaker award activity in some markets continued to affect operations.
- Material contingencies include the DOE project claims, which AECOM is appealing and for which recovery is uncertain; a refinery project dispute involving competing payment and damage claims; and a New York environmental-permit matter with no reasonably estimable potential loss. The company also reported approximately $500.2 million of standby letters of credit and $3.8 billion of surety bonds, principally supporting project execution.
- Other exposures include fixed-price contract losses, government-contract audits or termination, joint-venture and performance-guarantee obligations, pension funding, foreign exchange and floating interest rates. Management said disclosure controls were effective and reported no material change in internal control or risk factors from its latest Form 10-K.
Investor verification priorities
- Reconcile the conflicting fiscal 2021 restructuring-cost outlook of $40–$50 million and $75–$95 million.
- Assess the durability of margin gains and distinguish fee-based growth from pass-through revenue and foreign-exchange effects.
- Review cash conversion, receivables sales, working-capital trends, and the impact of share repurchases and debt refinancing on liquidity and leverage.
- Track the DOE, refinery, and environmental matters, including any changes to claims, reserves, or potential exposure.
- Confirm the remaining business-disposal plans, related discontinued-operation losses, and any additional obligations retained after the sales.