Los Angeles — AECOM reported first quarter revenue of $5.0 billion. Net income and diluted earnings per share were $52 million and $0.32 in the first quarter, respectively, and represented decreases of 54% year-over-year. On an adjusted basis, diluted earnings per share was $0.56.
Organic revenue increased by 5% over the prior-year quarter, highlighted by double-digit growth in the Company’s higher-margin Americas design business and Management Services segment.
Total backlog increased by 22% year-over-year to a new all-time high of $59.5 billion.
Wins in the quarter were $11.0 billion, which included the contract for the $7 billion Terminal One project at JFK airport in New York, a 1.3 book-to-burn ratio in the Management Services segment.
Solid execution across the Company’s portfolio of projects resulted in adjusted earnings that were ahead of expectations, including 16% year-over-year adjusted EBITDA growth.
The Company continued to execute on its capital allocation priorities, including additional share repurchases in the quarter and in January, bringing total share repurchases to $210 million under its $1 billion Board authorized repurchase plan.
Update on Strategic Value Creation Actions:
AECOM has completed nearly all of the actions necessary to achieve its expected $225 million of annual G&A savings, which are expected to generate $85 million of realized savings in fiscal 2019, resulting in at least 110 basis points of margin improvement in the DCS segment this year and additional expected benefits in fiscal 2020 and beyond.
The Company continues to make progress on de-risking its business; in addition to the decisions made in fiscal 2018, including the planned exit from the fixed-price combined-cycle gas power plant construction market and non-core Oil & Gas markets, it is no longer pursuing international at-risk construction opportunities, has completed the spin-out of the infrastructure financing arm of AECOM Capital, and is reviewing its remaining at-risk construction exposure.
The Company has completed approximately 25% of its plan to exit at least 30 countries as part of a strategy to simplify its operating structure and to hone management’s focus on the most profitable growth opportunities.
Collectively, these actions position the Company to capitalize on its record backlog by focusing resources on higher-margin and lower-risk professional services businesses where its competitive advantages are greatest.
“Continued overall growth in the DCS and MS segments, new records for wins and backlog, and adjusted earnings that surpassed our expectations resulted in a strong start to the year, and we are firmly on track to achieve our full-year guidance, including expectations for double-digit adjusted EBITDA growth,” said Michael S. Burke, AECOM’s chairman and chief executive officer. “Importantly, we have taken and will continue to take decisive actions to maximize the profitability of our record backlog. With the positive momentum in the business, including several substantial wins already in the second quarter, and the expected benefits from our strategic actions, we are committed to achieving our five-year financial targets from fiscal 2018 through fiscal 2022, including a 5% revenue CAGR, a 9% adjusted EBITDA CAGR, a 12%-15% adjusted EPS CAGR and at least $3.5 billion of cumulative free cash flow.”
“The several records in the quarter create a strong foundation for expected profitable growth,” said W. Troy Rudd, AECOM’s chief financial officer. “Though cash flow was below our expectations primarily due to the partial U.S. government shutdown, we expect to recover this cash flow as the year progresses and expect to achieve our full year free cash flow guidance of $600 to $800 million. Importantly, we continue to execute on our capital allocation policy, as evidenced by $210 million of repurchases to-date under our $1 billion Board authorization.”
Wins and Backlog
Wins were $11.0 billion, which set a new record for the Company, and resulted in a book-to-burn ratio of 2.0. Wins included strength across the business, highlighted by the award for the new $7 billion Terminal One at JFK, and a 1.3 book-to-burn ratio in the MS segment. Total backlog increased by 22% over the prior year to $59.5 billion, which also set a new record.
Design & Consulting Services (DCS) — The DCS segment delivers planning, consulting, architectural and engineering design services to commercial and government clients worldwide in markets such as transportation, facilities, environmental, energy, water and government.
Revenue in the first quarter was $2.0 billion and increased by 5%. Constant-currency organic revenue increased by 7%. This performance included 12% organic growth in the Americas, which was driven by the transportation and water markets, including a positive contribution from the storm recovery efforts in the Southeastern U.S. and Caribbean.
Operating income was $120 million compared to $85 million in the year-ago period. On an adjusted basis, operating income1 was $126 million compared to $92 million in the year-ago period. Operating income increased over the prior year period due to strong performance in the Americas and Asia-Pacific regions.
Construction Services (CS) — The CS segment provides construction services for energy, sports, commercial, industrial, and public and private infrastructure clients.
Revenue in the first quarter was $2.0 billion and decreased by 5%. Constant-currency organic revenue declined by 2%, due to a decline in Building Construction and a reduced contribution from Power, which were consistent with prior expectations.
Operating income was $11 million compared to $40 million in the year-ago period. On an adjusted basis, operating income1 was $31 million compared to $51 million in the year-ago period. The decline in operating income reflects a lower contribution from Power. Importantly, execution of the Alliant Riverside combined-cycle gas power plant is on schedule and on budget.
Management Services (MS) — The MS segment provides program and facilities management and maintenance, training, logistics, consulting, technical assistance and systems-integration services and information technology services, primarily for agencies of the U.S. government, national governments around the world and commercial customers.
Revenue in the first quarter was $989 million. Revenue and organic3 revenue growth accelerated in the quarter to 17%, reflecting near record levels of backlog and strong funding for the U.S. Departments of Defense and Energy clients.
Operating income was $51 million compared to $40 million in the year-ago period. On an adjusted basis, operating income1 was $61 million compared to $50 million in the year-ago period. The increase in operating income represents strong execution on the segment’s near record backlog, and favorable end market trends.
AECOM Capital (ACAP) — The ACAP segment invests in and develops real estate projects. Revenue in the first quarter was $4 million and operating loss was $0.3 million. After the quarter closed, ACAP completed the sale of a property that resulted in an approximately 40% IRR and an approximately $10 million gain on its investment.
The effective tax rate in the first quarter was (106.7%), which included a benefit from the release of a $38 million valuation allowance. On an adjusted basis, the effective tax rate was 24.3%. The adjusted tax rate was derived by re-computing the annual effective tax rate on earnings from adjusted net income.5 The adjusted tax expense differs from the GAAP tax expense based on the taxability or deductibility and tax rate applied to each of the adjustments.
Operating cash flow for the first quarter was ($200) million and free cash flow6 was ($222) million. Cash flow was below expectations due primarily to slower collections from the U.S. Federal government as a result of the shutdown, which negatively impacted cash flow by approximately $200 million. The Company remains on track with its annual free cash flow guidance of $600 million to $800 million for fiscal 2019.
Balance Sheet and Capital Allocation
As of December 31, 2018, AECOM had $838 million of total cash and cash equivalents, $3.1 billion of net debt and $1.01 billion in unused capacity under its $1.35 billion revolving credit facility. During the quarter, the Company repurchased $30 million of stock and, including additional repurchases completed in January, has repurchased 6.7 million shares under its $1 billion Board authorization.