AECOM Q1 FY2021 10-Q Summary
Business context and period. AECOM reported its first quarter of fiscal 2021, the three months ended December 31, 2020. The company provides professional technical and management services through its Americas, International and AECOM Capital segments. Management Services and self-perform at-risk construction businesses are reported as discontinued operations.
Key financial metrics
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Continuing-operations revenue | $3.313 billion | $3.236 billion |
| Gross profit / margin | $184.4 million / 5.6% | $165.8 million / 5.1% |
| Operating income / margin | $141.2 million / 4.3% | $87.2 million / 2.7% |
| Income from continuing operations | $88.8 million | $34.9 million |
| Net income attributable to AECOM | $26.1 million; diluted EPS $0.17 | $40.6 million; diluted EPS $0.25 |
| Cash from operating activities | $7.1 million | $(206.9) million |
| Total debt | $2.090 billion | $2.085 billion at September 30, 2020 |
At December 31, 2020, cash and equivalents were $1.045 billion for continuing operations and $1.222 billion including cash classified as held for sale. Working capital was $899.3 million, down from $1.440 billion at September 30, 2020; days sales outstanding improved to 89 from 90. The company reported a 2.3 consolidated leverage ratio, 6.2 interest coverage ratio, and $1.329 billion available under its revolving credit facility, and was in compliance with debt covenants.
Material changes versus the prior period
- Revenue increased 2.4%, led by 4.3% growth in Americas; International revenue declined 3.5%. Americas activity benefited from construction management work on high-rise buildings in New York City. International revenue faced pandemic-related and lower oil-and-gas-market headwinds.
- Gross margin rose to 5.6% from 5.1%, primarily reflecting restructuring-related cost reductions. International gross margin improved to 5.2% from 3.3%; Americas remained 5.7%.
- Operating income increased 61.9%, with restructuring costs lower at $13.0 million versus $44.9 million. Interest expense fell to $30.7 million from $40.4 million.
- AECOM’s net income declined despite stronger continuing operations, as discontinued operations recorded a $55.8 million net loss versus $18.2 million of net income a year earlier. The current-quarter loss included a $95.8 million impairment of long-lived assets, a $11.3 million disposal loss and $10.9 million of transaction costs; the civil infrastructure remeasurement loss was reported as $58.3 million net of tax.
- Operating cash flow improved from a substantial outflow to a small inflow, primarily due to working-capital timing. Financing cash outflow included $468.9 million of share repurchases, and cash declined by $596.7 million during the quarter.
Outlook, risks and unusual items
- Management said the first fiscal quarter is typically the company’s weakest due to weather and holiday effects, and noted that COVID-19 continued to affect client spending, project schedules and award activity. State and local budget shortfalls and delays in the U.K., Middle East and Southeast Asia were cited.
- The company planned to exit self-perform at-risk construction and non-core oil-and-gas markets, and was exiting more than 30 countries. It cited proposed U.S. infrastructure initiatives as a potential positive, if enacted.
- Management expected fiscal 2021 restructuring costs of $30 million to $50 million in one discussion, while the liquidity section states expected restructuring costs of approximately $75 million to $95 million. The filing does not reconcile these different outlook figures.
- The board increased the stock repurchase authorization to $1.0 billion in November 2020. AECOM repurchased 9.5 million shares during the quarter at an average $46.94 per share.
- Liquidity risks include delayed payments on U.S. Virgin Islands storm-recovery contracts; the filing says working capital increased by more than $150 million from September 2018 to September 2019 and gives no certainty on timing or amount of future payments.
- Contingencies include approximately $481.5 million of standby letters of credit and $6.1 billion of surety bonds, primarily supporting project execution. The company is pursuing disputed Department of Energy claims and is involved in a retained refinery-project dispute; outcomes and potential losses are uncertain.
- After quarter-end, on February 8, 2021, AECOM amended its credit agreement, extending term-loan and revolver maturities to February 2026 and reducing revolving capacity to $1.15 billion.
Investor facts to verify
- Reconcile the filing’s differing fiscal 2021 restructuring-cost outlooks of $30–$50 million and $75–$95 million.
- Track cash conversion, working-capital movements, and collection timing on U.S. Virgin Islands contracts.
- Assess the final proceeds, remaining liabilities and cash effects of discontinued-business disposals, including the civil infrastructure sale completed after the quarter.
- Monitor the DOE and refinery disputes, related claims and any changes in reserves or recoveries.
- Confirm remaining repurchase authorization and its effect on liquidity, shares outstanding and leverage.
- Review the February 2021 refinancing terms and continued compliance with leverage and interest-coverage covenants.