AECOM Technology Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2012; comparable period is the three months ended December 31, 2011. The company provides professional technical and management support services globally through Professional Technical Services (PTS) and Management Support Services (MSS). Results are unaudited; management notes that this seasonally weak first quarter is not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Revenue | $2.017 billion | $2.029 billion | Down 0.6% |
| Revenue, net of other direct costs (non-GAAP) | $1.245 billion | $1.231 billion | Up 1.2% |
| Gross profit | $78.1 million | $90.3 million | Down 13.5% |
| Gross margin on revenue, net of other direct costs | 6.3% | 7.3% | Down 1.0 percentage point |
| Income from operations | $61.9 million | $76.7 million | Down 19.3% |
| Net income attributable to AECOM | $38.1 million | $47.9 million | Down 20.5% |
| Diluted EPS | $0.36 | $0.42 | Down $0.06 |
| Operating cash flow | $67.1 million | $(6.4) million | Improved |
- Revenue excluding acquired companies declined 2.0%; management attributed the decrease mainly to lower engineering, program and construction management work in the Americas and lower Australian mining services. Acquisitions contributed $29.1 million of revenue.
- PTS revenue fell 2.0% and segment gross profit fell 18.3%; PTS gross margin on net-of-other-direct-cost revenue declined to 6.3% from 7.7%. MSS revenue rose 11.0% and gross profit increased to $8.8 million from $5.5 million, supported primarily by increased U.S. Army services in the Middle East.
- Q1 gross profit included approximately $8 million of severance costs associated with reduced Australian mining activity. Equity earnings from joint ventures declined 34.4%, primarily due to lower earnings from a joint venture supporting U.S. government work in the Middle East.
- Cash and cash equivalents totaled $591.3 million, including $132.0 million held in consolidated joint ventures and restricted to those ventures; cash outside those ventures was $459.3 million. Working capital was $1.025 billion, down from $1.069 billion at September 30, 2012.
- Operating cash flow improved from the prior-year quarter, but included a $51 million net benefit from selling trade receivables. Investing cash outflow was $52.2 million, including acquisition payments; financing cash outflow was $16.9 million, reflecting share repurchases partly offset by net borrowing.
- Total debt rose to $1.233 billion from $1.070 billion at September 30, 2012. The company had $855.3 million available under its $1.05 billion revolving facility. Its leverage ratio was 2.56 against a maximum of 3.0, and it reported compliance with debt covenants.
Material changes and capital allocation
- During the quarter, AECOM acquired South Africa-based BKS Group and Asia-based KPK Quantity Surveyors for total consideration of $54.3 million in cash and $14.3 million in stock.
- The company repurchased 7.8 million shares during the quarter for approximately $167.1 million under its repurchase program. At December 31, $64.6 million remained under the then-current $300 million authorization. In January 2013, the board authorized a further $500 million for repurchases.
- Weighted average diluted shares declined to 105.5 million from 114.6 million. The company reported 100.9 million shares outstanding at December 31.
- Contracted and awarded backlog totaled approximately $17.1 billion at December 31: $9.0 billion contracted and $8.1 billion awarded but not yet signed. The filing cautions that backlog may be delayed, reduced or canceled and is not assured future revenue or profit.
Outlook, risks and contingencies
- Management said available operating cash flow, cash, borrowing capacity and potential access to debt or equity should be sufficient for projected needs for at least the next 12 months. No specific earnings or revenue guidance was provided.
- The company says its first fiscal quarter is typically its weakest, with revenue generally higher in the second half and the fourth quarter typically strongest. Weather, public-sector spending cycles, project timing and utilization can cause substantial quarterly fluctuations.
- Management highlighted the risk of U.S. federal spending reductions: sequestration was scheduled to begin March 1, 2013 absent further action and could reduce demand, delay or cancel projects, and affect results. Government appropriations, contract termination rights, audits and potential insourcing are additional exposures.
- Global Linguists Solutions, an equity-method joint venture, faces questioned costs on a pre-acquisition U.S. Army contract. The government withheld approximately $19 million pending resolution, and a Defense Department Inspector General investigation was ongoing; an unfavorable outcome could materially affect results.
- AECOM Australia is defending multiple Australian lawsuits related to traffic forecasts for an insolvent motorway project. The claims do not specify damages. Separately, U.S. authorities were investigating possible criminal charges concerning a subsidiary’s work for a Hawaii landfill; no action had been filed as of the report.
- The company reported approximately $237.1 million of contingent liability under standby letters of credit, principally for insurance and performance guarantees. It also identified professional liability, fixed-price contract, joint-venture, pension, foreign-exchange, interest-rate, acquisition-integration and goodwill-impairment risks.
- Net pension liabilities were $185.9 million. The filing also notes a $336 million goodwill impairment recorded in fiscal 2012 for EMEA and MSS reporting units; further impairment could be material.
Important facts for investors to verify
- Whether the lower PTS gross margin and Australian mining-related weakness persisted, and whether the $8 million severance charge was nonrecurring.
- How much of operating cash flow reflects recurring collections versus the $51 million receivables-sale benefit, and whether DSO continues to rise; DSO was 94 days versus 91 days at fiscal year-end.
- Progress on the GLS questioned costs and investigation, the Australian litigation, and the Hawaii investigation, including any change in estimated exposure or status.
- Backlog conversion, funding and cancellation risk, particularly for awarded but unsigned work and government-funded contracts.
- Debt and covenant headroom, upcoming maturities, and the effect of further repurchases or acquisitions on leverage and liquidity.
- Whether the additional January 2013 repurchase authorization and acquisition activity affect cash, debt and per-share results.