AECOM FY2019 Form 10-K Summary
Business and reporting period. AECOM provides engineering, design, construction, and government management services through Design and Consulting Services (DCS), Construction Services (CS), Management Services (MS), and AECOM Capital (ACAP). This 10-K reports the fiscal year ended September 30, 2019; fiscal Q4 was the three months ended that date. Amounts below are U.S. dollars.
Key financial results
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $20.17 billion | $20.16 billion |
| Gross profit / margin | $813 million / 4.0% | $651 million / 3.2% |
| Operating income | $25 million | $425 million |
| Net income (loss) attributable to AECOM | $(261) million; $(1.66) per diluted share | $136 million; $0.84 per diluted share |
| Cash from operations | $778 million | $775 million |
| Cash and cash equivalents | $1.08 billion | $887 million |
| Total debt | $3.44 billion | $3.67 billion |
| Working capital | $1.07 billion | $998 million |
- Fiscal Q4: Revenue was $5.12 billion, down from $5.31 billion in Q4 FY2018. AECOM reported an operating loss of $420 million and a loss attributable to AECOM of $474 million, versus operating income of $177 million and attributable net income of $84 million in the prior-year quarter. The Q4 results included a $615 million impairment charge, principally goodwill.
- Cash flow and liquidity: Investing activities used $147 million and financing activities used $433 million in FY2019. Revolver availability was $1.33 billion at year-end; management said expected operating cash flow, cash, and borrowing capacity were sufficient for projected needs for at least 12 months. Days sales outstanding rose to 86 from 78.
- Debt and covenants: The company reported a 3.4x consolidated leverage ratio and 4.9x interest coverage ratio and was compliant with its credit agreement covenants. A 1 percentage-point rise in floating rates was estimated to increase annual interest expense by $15.2 million.
- Backlog: Total backlog increased 10.4% to $59.7 billion, including $24.3 billion contracted, $33.1 billion awarded but not yet signed, and $2.3 billion attributable to unconsolidated joint ventures. Remaining unsatisfied performance obligations were $23.6 billion; about 60% was expected to be satisfied within 12 months. Backlog is not assured revenue.
Changes versus the prior period
- Annual revenue was nearly unchanged, but gross profit rose 25% and gross margin expanded from 3.2% to 4.0%, alongside lower subcontractor and other direct costs as a share of revenue (51% versus 53%).
- Operating income fell sharply, mainly reflecting $615 million of long-lived asset and goodwill impairment, $95 million of restructuring costs, and $10 million of disposal losses. The impairment was tied principally to CS self-perform at-risk construction exposure; $588 million was goodwill impairment.
- Segment revenue shifted: DCS rose 0.5% to $8.27 billion, CS fell 5.6% to $7.78 billion, and MS rose 11.5% to $4.12 billion, largely from a Department of Defense project. Gross margins were 6.6% for DCS, 0.7% for CS, and 5.0% for MS.
- Operating cash flow was broadly flat year over year. Debt declined by about $234 million, while cash increased by about $194 million.
Outlook, commentary, risks, and unusual items
- On October 12, 2019, AECOM agreed to sell MS for $2.405 billion, subject to customary adjustments and closing conditions, with completion expected in the first half of FY2020. The stated price includes about $150 million of contingent consideration tied to certain claims. The sale was not complete at the 10-K filing date.
- Management expected approximately $225 million of annual cost savings from its restructuring, including $150 million in FY2020. It forecast FY2020 restructuring costs of $130–$160 million and total cash costs of $160–$180 million, including about $40 million of real-estate capital expenditures.
- AECOM said it expected to exit fixed-price combined-cycle gas power plant construction and non-core oil and gas markets, reduce self-perform at-risk construction exposure, and evaluate exiting more than 30 countries to improve profitability and reduce risk. It cited potential transportation-business support from the FAST Act and possible infrastructure initiatives, but provided no overall revenue or earnings guidance in the supplied filing text.
- U.S. Virgin Islands storm-recovery payment delays increased working capital by more than $150 million year over year. AECOM had performed more than $750 million of work and was negotiating with local authorities and FEMA to accelerate funding; timing and amount of collections were uncertain.
- Significant claims included approximately $340 million recorded in contract assets and other non-current assets. Recoverability depends on disputed matters, including a Department of Energy project and a refinery turnaround claim; the filing states outcomes cannot be assured.
- Other key exposures include government budget and shutdown risk, contract termination and audit risk, fixed-price project losses, substantial debt and variable rates, surety and guarantee obligations, pension deficits, environmental and legal matters, foreign exchange and geopolitical risks, and cybersecurity. Issued surety bonds were $4.8 billion and standby letters of credit were $494 million.
- The defined-benefit pension deficit was approximately $484 million, up from $401 million, primarily due to lower discount rates. The company reported a $52 million contribution to multiemployer pension plans in FY2019.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Investor verification priorities
- Track whether the MS sale closes on the expected timetable and how much of its price, especially contingent consideration, is ultimately received; assess resulting debt repayment and post-sale concentration.
- Review cash collection and claims resolution, particularly the U.S. Virgin Islands receivables and the approximately $340 million of significant claims.
- Monitor CS project execution, remaining at-risk construction exposure, further impairment risk, and whether stated restructuring savings materialize.
- Reconcile backlog growth with signed and funded work, conversion to revenue, cancellation risk, and the gap between backlog and remaining performance obligations.
- Assess leverage, covenant headroom, refinancing needs, interest-rate sensitivity, and the cash impact of guarantees, surety bonds, pensions, and restructuring.
- Review the filing’s detailed legal-contingency disclosures for the DOE project, refinery turnaround, SR-91, and New York environmental matters; outcomes and potential losses are uncertain.