AECOM (NYSE: ACM) — Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2020. Although the request refers to 2020 Q4, this is an annual filing; quarterly figures below are for the fourth quarter ended September 30, 2020. Fiscal 2020 contained 53 weeks versus 52 weeks in fiscal 2019.
Business context
AECOM provides infrastructure consulting, engineering, design, program management and construction management services. Continuing operations are reported in Americas, International and AECOM Capital (ACAP). On January 31, 2020, AECOM completed the sale of its Management Services business; its self-perform at-risk construction businesses were also classified as discontinued operations and were being exited or marketed for sale.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $13.240 billion | $13.642 billion |
| Gross profit / margin | $709.6 million / 5.4% | $611.7 million / 4.5% |
| Operating income | $381.5 million | $396.1 million |
| Continuing income attributable to AECOM | $170.4 million | $211.0 million |
| Net loss attributable to AECOM, including discontinued operations | $(186.4) million | $(261.1) million |
| Cash from operating activities | $329.6 million | $777.6 million |
| Cash and cash equivalents at year end | $1.708 billion | $885.6 million |
| Total debt at year end | $2.085 billion | $3.353 billion |
| Working capital at year end | $1.440 billion | $1.073 billion |
FY2020 gross margin improved despite lower revenue, primarily reflecting restructuring-related cost reductions. Operating income included $188.3 million of restructuring costs. Income tax expense from continuing operations was $45.8 million, versus $13.5 million in FY2019. The filing reports interest expense of approximately $159.9 million.
Fourth-quarter FY2020 revenue was $3.569 billion, gross profit $189.9 million, operating income $65.3 million, and net loss attributable to AECOM $230.3 million, largely reflecting discontinued-operation losses.
Liquidity, debt and cash flow
- Operating cash flow fell to $329.6 million from $777.6 million, with management citing working-capital receipt and payment timing. Sale of trade receivables had a $143.3 million net unfavorable cash-flow impact in FY2020.
- Investing activities provided $2.037 billion, principally reflecting $2.219 billion of net cash proceeds from the Management Services sale. Financing activities used $1.628 billion, including debt repayments and note redemption.
- At September 30, 2020, $1.331 billion was available under the revolving credit facility. The company reported a 2.7 consolidated leverage ratio and 5.0 interest coverage ratio and compliance with credit covenants.
- Management stated that anticipated operating cash flows, cash, borrowing capacity and potential capital-market access should meet projected needs for at least 12 months.
Material changes and unusual items
- Revenue decreased 3.0% year over year. Americas revenue fell 2.4% and International revenue fell 4.6%; COVID-19 disruptions and lower oil and gas prices were cited as factors. Segment gross margins improved in both regions.
- Net loss from discontinued operations was $340.6 million, including a $161.9 million gain on the Management Services sale, an approximately $83.6 million goodwill impairment, and a $247.2 million write-down of the self-perform at-risk construction businesses to fair value less costs to sell.
- Total backlog increased 12.9% to $41.2 billion, including $19.5 billion contracted, $21.1 billion awarded but not yet signed, and $0.6 billion attributable to unconsolidated joint ventures. Remaining unsatisfied performance obligations were $18.9 billion; backlog is not assured revenue and includes estimated pass-through costs.
- Cash proceeds from the Management Services sale were reported as $2.28 billion, including a favorable working-capital adjustment and contingent consideration. The Power construction business was sold on October 16, 2020, after year end.
Outlook, commentary and risks
- AECOM expects $30 million to $50 million of FY2021 restructuring costs and cash costs, intended to support margin improvement and efficiencies. It also planned to exit self-perform at-risk construction and non-core oil and gas markets and was in the process of exiting more than 30 countries.
- Management cited COVID-19-related project pauses, delays, client-spending uncertainty, state and local budget shortfalls, and difficulty forecasting future performance. Government retention subsidies contributed approximately $23.2 million in FY2020.
- Key risks include government funding and contract termination, fixed-price and guaranteed-maximum-price project losses, collection delays, claims recovery uncertainty, joint-venture and guarantee exposure, environmental and professional liability, pension funding, cybersecurity, and international, foreign-exchange and interest-rate risks.
- At September 30, 2020, issued surety bonds totaled $6.2 billion and standby letters of credit totaled $529.1 million. The defined-benefit pension deficit was approximately $406 million.
- Significant unresolved matters include DOE claims that were denied and expected to be appealed, a New York environmental-permit matter with loss range not reasonably estimable, and refinery-project litigation involving substantial competing claims.
- The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Most important facts for investors to verify
- Whether continuing-operations revenue, margins and operating cash flow stabilize after the divestiture and restructuring, and how much of the backlog converts to profitable revenue.
- Final sale proceeds and any contingent consideration, remaining disposal costs, and the outcome and accounting treatment of the self-perform construction exits.
- Cash conversion, receivables and claims collectability, particularly the approximately $170 million of significant claims and delayed U.S. Virgin Islands project payments.
- Debt repayment, covenant headroom, liquidity availability and exposure from surety bonds, letters of credit, guarantees and pension obligations.
- Resolution, timing and potential financial impact of the DOE, environmental and refinery disputes; the filing does not provide clear loss estimates for certain matters.